Algonquin Power & Utilities Corp. (TSX: AQN) and Empire District Electric Co. (NYSE: EDE) announced Feb. 9 that a subsidiary of Liberty Utilities Co., Algonquin’s wholly owned regulated utility business, has entered into an agreement and plan of merger under which Liberty Utilities will indirectly acquire Empire and its subsidiaries.
Under the terms of the all-cash transaction, which has been unanimously approved by the Board of Directors of each company, Empire’s shareholders will receive US$34.00 per common share, representing an aggregate purchase price of approximately C$3.4 billion (US$2.4 billion), including the assumption of approximately C$1.3 billion (US$0.9 billion) of debt as of Sept. 30, 2015. This purchase price represents a 21% premium to the closing price on Feb. 8, 2016, and a 50% premium to Empire’s unaffected share price on Dec. 10, 2015.
Closing of the transaction is subject to customary closing conditions, including the approval of Empire’s common shareholders, and the receipt of certain state and federal regulatory and government approvals, including approval of the relevant commissions of the states of Arkansas, Kansas, Missouri and Oklahoma, the Federal Communications Commission, the Committee on Foreign Investment in the United States and the Federal Energy Regulatory Commission, and the expiration or termination of the waiting period under the Hart-Scott-Rodino Act. The transaction is expected to close in the first quarter of 2017.
At the closing of the transaction, Empire will become a wholly-owned subsidiary of Liberty Utilities and will cease to be a publicly-held corporation.
Empire is a Joplin, Missouri-based regulated electric, gas (through its wholly-owned subsidiary Empire District Gas Co.), and water utility, collectively serving approximately 218,000 customers in Missouri, Kansas, Oklahoma, and Arkansas.
“The acquisition of Empire represents a continuation of our disciplined growth strategy which strengthens and diversifies Algonquin’s existing businesses and strategically expands our regulated utility footprint in the mid-west United States. The addition of this large, well run utility to the Algonquin family will support our 10% annual dividend growth target through significant accretion to shareholder cash flows and earnings,” said Ian Robertson, Chief Executive Officer of Algonquin.
Brad Beecher, Empire’s President and Chief Executive Officer, said: “Over the years, Empire has focused its energies on its core values of providing safe, reliable and economical service to its customers, a fair return to its shareholders, and a safe and positive work experience for its employees. We are not only pleased that our shareholders will be fairly compensated for their investment in Empire, but also that we’ve found a partner who shares our same values, is dedicated to continuing to serve our customers and communities at a high level, and is committed to maintaining the strong working relationships we have developed with our regulatory agencies.”
Upon closing, the transaction will add C$4.1 billion of utility assets and 218,000 customers to Liberty Utilities’ current portfolio of utility operations resulting in a total asset base of Algonquin of C$8.9 billion, an 87% increase. As a result of the transaction, Algonquin’s business mix will shift towards regulated utility operations, with EBITDA from regulated utility operations increasing from 51% to 72% on a pro forma basis.
Empire is a regulated investment grade utility with approximately 90% of its on system revenue from Missouri and Arkansas, regulatory jurisdictions that Liberty Utilities has operated in for many years. The transaction further diversifies Liberty Utilities’ electric, gas, and water utility operations and provides an entry into two new markets in Oklahoma and Kansas.
Following the close of the transaction, Empire will continue to be regulated by the state commissions, the FCC and the FERC and will continue to operate under the Empire name. The transaction will not affect Empire’s customers or their rates paid for service. No changes to management or employee staffing at Empire are expected as a result of the transaction, and Empire will maintain its existing headquarters location in Joplin, Missouri.
Wells Fargo Securities LLC acted as lead Merger Advisor and JPMorgan acted as lead Financial and Strategic Advisor to Algonquin. Husch Blackwell LLP served as transaction legal counsel and Choate Hall & Stewart LLP served as finance legal counsel to Algonquin.
Moelis & Co. LLC acted as exclusive financial advisor to Empire. Cahill Gordon & Reindel LLP served as legal counsel to Empire.
Algonquin Power & Utilities has a Distribution Group that provides rate regulated water, electricity and natural gas utility services to approximately 560,000 customers in the United States. The Generation Group owns a portfolio of North American-based contracted wind, solar, hydroelectric and natural gas powered generating facilities representing more than 1,100 MW of installed capacity. The Transmission Group invests in rate regulated electric transmission and natural gas pipeline systems in the United States and Canada.
Empire’s website shows the company with these generating assets that total 1,326 MW:
- Asbury, coal, 194 MW;
- Riverton, gas/oil, 226 MW;
- Energy Center, gas/oil, 260 MW;
- Ozark Beach, hydro, 16 MW;
- State Line Combined Cycle (60% ownership), gas/oil, 297 MW;
- State Line Unit 1, gas/oil, 93 MW;
- Iatan (12% ownership), coal, 190 MW; and
- Plum Point (7.5% ownership), coal, 50 MW.