Hydro One Limited (TSX:H) and Avista (NYSE:AVA) have filed applications with state utility commissions in Washington, Idaho, Oregon, Montana, and Alaska, as well as with FERC, requesting regulatory approval of the companies’ proposed merger, according to a Sept. 14 statement posted on Hydro One’s website.
To complete the transaction, approvals must be obtained from those agencies, as well as the Federal Communications Commission (FCC), according to the statement, which further noted that also required is 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.
The filings with those agencies will be made in the coming months, the statement noted, adding that the merger must also be voted upon by Avista shareholders and receive a majority vote in favor. Avista filed the preliminary proxy with the Securities and Exchange Commission on Sept. 14, according to the statement.
According to the application filed with the Washington Utilities and Transportation Commission, for instance, Hydro One, acting through Olympus Equity LLC, an indirect, wholly owned subsidiary, and Avista request an order of the commission authorizing the proposed transaction whereby Olympus Equity would acquire all of the outstanding common stock of Avista, and Avista would thereafter become a direct, wholly owned subsidiary of Olympus Equity and an indirect, wholly owned subsidiary of Hydro One.
The joint applicants – Hydro One and Avista – request approval of the proposed transaction by Aug. 14, 2018, and have made the same request in other state jurisdictions, in order to complete the proposed transaction by Sept. 30, 2018, the application noted.
Under the terms of the all-cash transaction, Avista shareholders would receive $53 per common share, representing a 24% premium to Avista’s last sale price on July 18, of $42.74 per share, the application said. The aggregate purchase price is about $5.3bn, comprised of an equity purchase price of $3.4bn and the indirect assumption of about $1.9bn of debt, the application noted.
Hydro One would finance the proposed transaction through a combination of medium and long-term borrowings and the net proceeds from its previously completed issue of C$1.54bn of convertible unsecured subordinated debentures, which would form the permanent equity component of the financing plan upon conversion at closing of the proposed transaction, according to the application.
Avista’s decision to enter into the proposed transaction was driven by the unique partnership that is possible with Hydro One, the application said, adding that the merger would allow Avista and its customers to benefit from being part of a larger organization, while simultaneously preserving local control of Avista, its commitment to community involvement, and the retention of Avista’s employees and management team, as well as its culture and its way of doing business.
Following closing of the proposed transaction, Avista would maintain its existing corporate headquarters in Spokane, Wash., and would continue to operate as a standalone utility in Washington, Oregon, Idaho, and Montana, the application noted, adding that Avista’s subsidiary, Alaska Electric Light and Power, would continue to operate as a standalone utility in Alaska.
Furthermore, Avista would maintain office locations throughout its service areas, continue to operate under the Avista name, and seek to retain its existing employees and management team, according to the application.
Avista would continue to have a local board of directors consisting primarily of either board members chosen by Avista, and/or members that reside in the Pacific Northwest, the application noted. Additionally, the application said that the communities that Avista serves would see increased charitable contributions and a continuation of the support that Avista provides in economic development and innovation.
Customers would see immediate financial benefits in the form of proposed retail rate credits beginning upon the closing of the proposed transaction, the application said, adding that over time, the merger would also provide increased opportunities for innovation, research and development, and efficiencies.
Hydro One, which is a pure play transmission and distribution utility located solely within Ontario, seeks diversification in terms of jurisdiction and service areas, the application noted.
The proposed transaction with Avista achieves both goals by expanding Hydro One into the U.S. Pacific Northwest and expanding its operations to natural gas distribution and electric generation, the application said. In addition, the proposed transaction would deliver the increased scale and benefits that come from being a larger player in the utility industry, according to the application.
Mayo Schmidt, president and CEO, Hydro One Limited, said in the statement, in part: "Together, we are growing, diversifying and strengthening our business. This is allowing us to gain further efficiencies through enhanced scale and increased purchasing power that will provide a strong foundation for the future with material benefits to all of our stakeholders most importantly the customers and communities we serve."
Scott Morris, Avista chairman, president and CEO, said in the statement, in part: "As we file our applications, we are very pleased that Hydro One and Avista together have agreed to a series of important commitments designed to provide benefits to our customers and the communities we serve, well into the future. Following the closing of the transaction, our customers will continue to receive the same great service from Avista, because the merger is not designed to target the elimination of jobs or other cost-cutting that may affect customer service."