UBS analyst sees no landmines for Wisconsin Energy deal

UBS Global Research Analyst Julien Dumoulin-Smith sees no major regulatory pitfalls for the Wisconsin Energy (NYSE:WEC) acquisition of Integrys Energy Group (NYSE:TEG) although the deal will need approval from multiple states.

Wisconsin Energy announced June 23 that it has reached a deal to buy Integrys in a $9.1bn transaction that includes cash and stock. The UBS official released his analysis of the move June 26.

The deal requires shareholder approvals and management will make the filings in Wisconsin, Illinois, Michigan, Minnesota, and the federal agencies in the next two months.

The states generally have either a ‘no adverse effect’ or ‘public interest’ standard that require utility customers are either no worse off or made better-off than they were previously. “All commissioners in these states are appointed and we do not anticipate any material issues in transaction approval; however, we would look for some concessions to be required,” according to the UBS analysis.

Wisconsin and Minnesota do not have defined timelines for approval, Illinois and Michigan have 11 and 12 month timelines, respectively, Dumoulin-Smith said.

Wisconsin Energy is continuing to move forward with the coal-to-gas conversion of the Valley power plant; revamping the Twin Falls hydro facility in Michigan and gas expansion in western Wisconsin.

A weak area for Wisconsin Energy, however, has been electric volumes and weather-normalized electric sales. The company’s earnings release is scheduled to occur around July 30.

The UBS analyst says that Wisconsin Energy has beaten consensus earnings for 17 consecutive quarters, going back to late 2009. The analyst thinks that an outside acquisition of Wisconsin Energy is unlikely because of Wisconsin laws that make out-of-state acquisitions challenging.”

“The electric utility industry is projected to experience weak or negative electric demand growth in coming years as a tepid economy and energy efficiency dampen demand,” the UBS analyst said.

Blending with neighboring Integrys should make Wisconsin Energy better equipped to deal with the current climate, the analyst said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.