AES, the Virginia-based global power producer, has agreed to buy DPL, a regional energy company, in a transaction valued, on an enterprise basis, at $4.7bn.
Under the terms of the deal, announced on Wednesday, AES will pay $30 per share in cash to DPL shareholders, for a total of $3.5bn for the equity, and assume $1.2bn in net debt. The purchase price represents close to a 9 per cent premium to DPL’s closing stock price of $27.59 on Tuesday.
The deal follows a string of moves in recent months as the sprawling US power sector, of some 250 midsize and large utilities and distribution companies, attempts to consolidate.
The process has been difficult; regulators have scuppered previous merger attempts by utilities, making companies uncomfortable about their own prospects.
FPL, which owns Florida’s largest utility, abandoned a $11.4bn takeover attempt of Constellation Energy group in 2006 after a face-off with regulators in Maryland, where Constellation is based. Exelon, a utility based in Chicago, dropped its plan in 2006 to buy Public Service Enterprise Group of New Jersey amid concerns by regulators in that state.
In both cases, legislators raised concerns that the combined utility groups could lead to higher power rates.
Activity picked up again this past year, however, when Duke Energy announced its $13.8bn takeover of Progress Energy and Northeast Utilitiesannounced its acquisition of Nstar for $4.1bn in shares.
Paul Hanrahan, AES president and chief executive, said: “We are concentrating our growth efforts in a few key markets, including the US utility sector, where we see opportunities to leverage our global platform of 40,500MW and 11.5m utility customers’’.
He expects the acquisition of DPL to benefit from the regional scale provided by its nearby utility business at Indianapolis Power & Light. DPL serves more than 500,000 customers in West Central Ohio.
DPL will remain a standalone business, with local management and corporate functions, but it will be able to leverage the expertise and resources of AES’ global portfolio. DPL headquarters will remain in Dayton, and the company will continue to use the local name.
The deal remains subject to approval of DPL shareholders and state and federal regulators. AES expects approvals within six to nine months.
AES has committed bridge financing in place from Bank of America Merrill Lynch. Financing will include a combination of non-recourse debt, the re-issuance of corporate debt at AES that was temporarily paid down in 2010, and cash on hand.
AES shares rose more than 2 per cent, to $12.75, before the market opened. Shares of DPL soared 8 per cent to $29.92.
Bank of America Merrill Lynch acted as financial adviser, and Skadden, Arps, Slate, Meagher & Flom served as legal counsel to AES. DPL’s financial adviser on the transaction was UBS Investment Bank, and its legal adviser was Cadwalader, Wickersham & Taft.