Aqua America Announces Agreement to Acquire Peoples
Resulting company will create leading, Pennsylvania-headquartered regulated water and natural gas
infrastructure company
-
The resulting company will:
- Serve 1 million water utility customer connections and more than 740,000 gas utility customer
connections
- Have projected annual rate base growth of 7 percent water and 8 to 10 percent natural gas
through 2021
- Retain corporate and water headquarters in Bryn Mawr and natural gas headquarters in
Pittsburgh
- Maintain an accelerated infrastructure replacement strategy focused on utility infrastructure
reliability that also ensures jobs and growth
- Create a larger, more diversified, fully regulated water and natural gas utility with stable
capital structure and long-term growth opportunities through significant infrastructure investment
- Transaction is expected to be immediately accretive to earnings the first full year after close
and over the long term
Aqua America Inc., (NYSE:WTR) (“Aqua”) a regulated water and wastewater utility, today announced it will acquire Peoples in an
all-cash transaction that reflects an enterprise value of $4.275 billion, which includes the assumption of approximately $1.3
billion of debt. This acquisition marks the creation of a new infrastructure company that will be uniquely positioned to have a
powerful impact on improving the nation’s infrastructure reliability, quality of life and economic prosperity.
Peoples consists of Peoples Natural Gas Company LLC, Peoples Gas Company LLC and Delta Natural Gas Company Inc. The
multi-platform entity brings together the second-largest U.S. water utility and fifth-largest U.S. stand-alone natural gas local
distribution company (based on customers), and will serve 1.74 million customer connections, which represent approximately 5
million people. In 2019, the new company will have approximately $10.8 billion in assets and a projected U.S. regulated rate base
of over $7.2 billion. The transaction is not expected to have any impact on rates.
The combined enterprise will be among the largest publicly traded water utilities and natural gas local distribution companies
in the U.S., uniquely positioned to meaningfully contribute to the nation’s natural gas and water infrastructure reliability. The
transaction will bring together two companies that each have more than 130 years of service and proven track records of operational
efficiency, complementary service territories and strong regulatory compliance.
Aqua will acquire Peoples from infrastructure funds managed by Sausalito, California-based SteelRiver Infrastructure Partners.
The resulting company will be well positioned to grow and generate shareholder value through increased scale, a balanced portfolio
and stable capital structure.
“The acquisition of Peoples is a great strategic fit and aligns directly with our growth strategy and core competencies of
building and rehabilitating infrastructure, timely regulatory recovery, and operational excellence,” said Aqua Chairman and CEO
Christopher Franklin. “Both Aqua and Peoples place customers at the center of all we do. We care deeply for employees and their
safety, have expertise in pipe replacement, and prioritize stewardship of the environment. Both companies have worked hard to earn
credibility with regulators and respect of other stakeholders, and to employ advanced operational efficiencies, all of which create
long-term value for customers, communities, employees and shareholders.”
The combined company will operate regulated utilities over a 10-state footprint and will have its largest concentration in
Pennsylvania, which will account for more than 77 percent of the company’s total rate base. Aqua’s rate base is growing annually at
approximately 7 percent (2019-2021) and Peoples’ rate base is growing annually at 8 to 10 percent (2019-2021), creating a strong
combined growth trajectory.
“By bringing together water and natural gas distribution utility companies that share a core mission of providing essential
services to customers, the resulting company will be positioned to grow and drive value, as well as make a long-term, positive
contribution to our nation’s infrastructure challenges and ensure service reliability for generations to come,” Franklin said. “The
new leadership team will take an integrated management approach to cooperatively running the utilities. We plan to leverage the
combined breadth of experience from both companies to lead our new combined company.”
Morgan O’Brien, who will continue to lead the natural gas company, said, “The planned combination with Aqua creates a larger
strategic utility committed to growing our region’s economic future using the most responsible and innovative tools in our
long-term infrastructure replacement programs in Pennsylvania, West Virginia and Kentucky. Our resulting company is deeply rooted
in the long-established regulatory environments where partnership opportunities will support growth and safety. We are focused on
strongly encouraging infrastructure replacement and expansion to better serve customers and fuel growth opportunities. In addition,
this larger entity will provide employees with enhanced opportunities for career development.
“For example, the Pennsylvania Public Utility Commission has demonstrated its support for our infrastructure investment program,
through which we will replace more than 3,100 miles of bare steel and cast-iron pipe in the coming years at a current rate of about
150 miles per year,” said O’Brien.
Post-transaction close, the combined businesses will be led by Franklin. The company’s corporate headquarters will be in Bryn
Mawr, Pennsylvania, and Aqua’s water and wastewater operations will remain headquartered in Bryn Mawr. Peoples, the natural gas
operating subsidiary, and its employees will remain headquartered in Pittsburgh and other operating locations will remain
unchanged.
Transaction details
The transaction is anticipated to be immediately accretive to earnings the first full year after close and over the long term.
Management anticipates enhanced future earnings growth and continued long-term dividend growth. Significant growth in rate base and
earnings is expected to be driven by pipe-replacement capital expenditures, new customer connections and continued success in
municipal acquisitions. As a larger publicly traded utility, the resulting company will have enhanced ability to access capital and
fund its infrastructure and capital expenditure needs.
The all-cash transaction reflects an enterprise value of Peoples of $4.275 billion, which includes the assumption of
approximately $1.3 billion of debt. The acquisition is supported by a fully committed bridge facility. Permanent financing will
include an appropriate mix of equity and debt to target a strong balance sheet and investment-grade credit ratings.
The transaction is subject to regulatory approvals, including approval by the public utility commissions in Pennsylvania,
Kentucky and West Virginia. Assuming fulfillment of those conditions, closing of the transaction is expected in mid-2019.
Following closing, the company’s operational makeup will consist of greater than 99 percent in regulated utilities. Total rate
base is expected to exceed $7.2 billion, with approximately 70 percent in water and wastewater and 30 percent in natural gas. Total
rate base is expected to grow approximately 7 percent a year for Aqua and 8 to 10 percent a year for Peoples through 2021.
2018 Aqua Guidance
Aqua reaffirms the prior guidance and qualifies its earnings per diluted common share range to be exclusive of transaction
expenses associated with the Peoples transaction.
- Earnings per diluted common share of $1.37 to $1.42, excluding transaction expenses
- Infrastructure investments of approximately $500 million in 2018 for communities served by Aqua
- Infrastructure investments of approximately $1.4 billion through 2020 in existing operations to
improve and strengthen systems
- Total customer growth of between 2 and 3 percent for 2018
- Aqua Pennsylvania filed a rate case in August 2018 with resolution expected in 2019
Advisors
Moelis & Company LLC is serving as the lead financial advisor to Aqua. Goldman Sachs & Co. LLC and RBC Capital Markets are
also serving as financial advisors to Aqua, and Goldman Sachs Bank USA and Royal Bank of Canada are providing the fully committed
bridge facility. Simpson Thacher & Bartlett LLP is serving as legal advisor to Aqua.
Morgan Stanley & Co. LLC is serving as financial advisor to the seller, and Winston & Strawn LLP is the seller’s legal
advisor.
Analyst call information
Date: Oct. 23, 2018
Time: 8:30 a.m. EDT (please dial in by 8:15 a.m.)
Webcast and slide presentation link:
http://ir.aquaamerica.com/events-&-presentations
Replay Dial-in #: 888.203.1112 (U.S.) & +1 719.457.0820 (International)
Confirmation code: 9368677
A conference call with financial analysts will take place on Oct. 23 at 8:30 a.m. Eastern Daylight Time. The call and slide
presentation will be webcast live so that interested parties may listen over the internet by logging on to
AquaAmerica.com and following the link for
Investor Relations. The webcast will be archived in the investor relations section of the company’s website for 90 days
following the call. Additionally, the call will be recorded and made available for replay at 2 p.m. on Oct. 23, 2018 for 10
business days following the call. To access the audio replay in the U.S., dial 888.203.1112 (pass code 9368677). International
callers can dial +1 719.457.0820 (pass code 9368677).
Organizational information
Aqua America is a 132-year-old regulated water and wastewater utility whose 1,600 employees serve 3 million people in
Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia. Headquartered in Bryn Mawr, Pennsylvania
near Philadelphia, Aqua’s mission is to protect and provide Earth’s most essential resource for the customers and communities it
serves. Aqua’s subsidiaries treat and deliver water through thousands of miles of distribution pipe to customers in its footprint.
Its team of dedicated experts helps ensure a safe and reliable drinking water supply, and a professional team of engineers and
operators helps plan, design and install about 150 miles of distribution pipe every year. The team performs its work with
integrity, respect and the pursuit of excellence at the forefront of all it does. Since 1995, Aqua has added and successfully
integrated water and wastewater systems from 300 acquisitions to its family.
Peoples is a 133-year-old natural gas company headquartered in Pittsburgh, Pennsylvania, with about 1,500 employees who live and
work in the communities it serves. Owned by infrastructure funds managed by SteelRiver Infrastructure Partners since 2010, Peoples
is the largest natural gas distribution company in Pennsylvania, providing reliable, low-cost natural gas distribution service
to approximately 740,000 customers in Western Pennsylvania, West Virginia, and Kentucky. In the last 7 years, Peoples
purchased the T.W. Phillips Gas & Oil Company and Equitable Gas, adding service territories in West Virginia and Kentucky. In
2017, Peoples closed its purchase of Delta Natural Gas, which retains this brand name and is headquartered in Winchester, Kentucky.
In the past 8 years, Peoples has grown its customer base from approximately 360,000 customers to over 740,000 customers.
Caution concerning forward-looking statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,
including, among other statements regarding: the anticipated impact of the transaction on the company’s earnings; anticipated
growth rates; the expected timing of the closing of the transaction; financing for the transaction; the anticipated year-end
earnings per share results; and the anticipated amount of capital investment through 2018. There are important factors that could
cause actual results to differ materially from those expressed or implied by such forward-looking statements including: the
company’s ability to obtain the necessary regulatory approvals on a timely basis or at all; the company’s ability to integrate the
acquired business; the company’s ability to achieve the projected synergies in connection with the proposed transaction and to grow
the combined business; general economic business conditions; the company’s ability to fund needed infrastructure due to its
financial position; housing and customer growth trends; unfavorable weather conditions; the success of certain cost containment
initiatives; changes in regulations or regulatory treatment; availability and access to capital; the cost of capital; disruptions
in the credit and equity markets (including without limitation disruptions that could affect access to capital anticipated for the
consummation of the contemplated transaction); the success of growth initiatives; the company’s ability to execute on its core
capabilities of prudently deploying capital, consistently earning credibility with stakeholders, and maintaining its status as one
of the most efficient utilities in the United States; and other factors discussed in our Annual Report on Form 10-K, which is on
file with the Securities and Exchange Commission. For more information regarding risks and uncertainties associated with Aqua
America’s business, please refer to Aqua America’s annual, quarterly and other SEC filings. Aqua America is not under any
obligation – and expressly disclaims any such obligation – to update or alter its forward-looking statements whether as a result of
new information, future events or otherwise.
WTRF
Aqua America Inc.
Brian Dingerdissen, 610-645-1191
Investor Relations
BJDingerdissen@AquaAmerica.com
or
Stacey Hajdak, 610-520-6309 (O)
267-294-1866 (M)
Communications and Marketing
SMHajdak@AquaAmerica.com
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