Hydro One (TSX:H) and Avista (NYSE:AVA) on July 19 jointly announced a definitive merger agreement under which Hydro One would acquire Avista for $53 (C$67) per share in a $5.3bn (C$6.7bn) all-cash transaction.
Together, the companies would “create a North American leader in regulated electricity and natural gas business with” more than $25.4bn (C$32.2bn) in combined assets, according to the statement.
In a video posted on Hydro One’s website, Hydro One President and CEO Mayo Schmidt said, in part: “Today, we announced that we are acquiring Avista Corporation, a market-leading, highly regarded, fully regulated transmission and distribution utility, headquartered in Spokane, Wash., with operations in Washington, Idaho, Montana, Oregon, and Alaska. Now, as a top 20 North American utility, we will bring together over 200 years of collective expertise between Hydro One and Avista to develop and deliver new and exciting products and services for our customers. Hydro One and Avista joining together will not impact customer rates in any way.”
Avista Chairman, President and CEO Scott Morris said in the July 19 statement, in part: "For Avista, the decision to team up with Hydro One at a time of strength and growth represents a win for our customers, employees, shareholders and the communities we serve. Through this agreement, we have a unique opportunity to secure a partnership that allows us to continue to define and control, to a significant degree, future operations and opportunities in a consolidating industry landscape for the benefit of our customers. In Hydro One, we believe we’ve found a partner that allows us to preserve our identity and our proud legacy, while also preparing us for the future."
According to a presentation about the proposed transaction, Avista management would remain in place; there would be a formation of a subsidiary board, which would represent the interests of Avista’s service territories and the communities it serves; and there would be no changes in Hydro One management.
As noted in a fact sheet about the proposed transaction, Hydro One is Ontario’s largest electricity transmission and distribution provider, and the Government of Ontario is a minority shareholder (49.9%). The company has more than 5,500 employees; more than 30,000 kilometers of high voltage line; 306 transmission stations; and 1.3 million residential and business customers across Ontario, according to the fact sheet.
Avista, a regulated transmission, distribution and generation utility, has more than 1,700 employees; 3,600 kilometers of transmission line and 30,000 kilometers of distribution lines; 162 transmission/distribution stations; and more than 700,000 electricity and natural gas customers, according to the fact sheet.
Under the proposed transaction, Avista would become a wholly owned subsidiary of Hydro One, and the new company would have more than C$32.2bn in assets, a combined rate base in excess of C$22.6bn, and more than two million end customers, according to the fact sheet.
No workforce reductions are anticipated as a result of the proposed transaction, the fact sheet noted, adding that the combined entity would be operated from Toronto, Ontario.
Among other things, the fact sheet noted that the proposed acquisition provides opportunity for a higher return on equity (ROE) – the current ROE in Ontario is 8.78%, while Avista’s is between 9.4% and 12.88% per region; and that on closing, Avista’s common stock would be delisted from the New York Stock Exchange, while Hydro One’s common shares would continue to be listed on the Toronto Stock Exchange.
According to the statement, the proposed transaction was unanimously approved by both companies’ Boards of Directors, and is expected to close in the second half of 2018, subject to Avista common shareholder approval and certain regulatory and government approvals and clearances, including approval by the Washington Utilities and Transportation Commission, the Oregon Public Utility Commission, the Idaho Public Utilities Commission, the Regulatory Commission of Alaska, the Montana Public Service Commission, FERC, clearance by the Committee on Foreign Investment in the United States, and compliance with applicable requirements under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as the satisfaction of customary closing conditions.
According to the statement, Moelis & Company LLC is acting as exclusive financial advisor to Hydro One, while BofA Merrill Lynch is acting as exclusive financial advisor to Avista. Bracewell LLP is acting as legal advisor to Hydro One, while Kirkland & Ellis is acting as legal advisor to Avista, the statement noted.