Shareholders of CH Energy Group Inc. have voted overwhelmingly to approve the purchase of CH by Fortis Inc., Canada”™s largest investor-owned distribution utility.
The transaction is expected to close in the first quarter of 2013 after regulatory approvals. CH shareholders will get $65 a share (U.S. dollars) in the all-cash transaction. CH is the parent company of Central Hudson Gas & Electric Corp. in Poughkeepsie.
Central Hudson will operate as a standalone company with little change in day-to-day operations. Fortis has committed to retain all employees and to continue Central Hudson”™s longstanding support of local community organizations.
“Furthermore, Fortis has committed to provide more than $20 million in customer benefits over five years once the transaction is approved, including $2 million in avoided costs per year; establishment of a $5 million benefit fund to support customer and community outreach programs; an additional $5 million to absorb costs that would normally be recovered in rates from customers; and a one-year rate freeze through July 2014,” said Steven Lant, president and CEO of CH Energy.
Lant also noted that Fortis has access to capital that could allow Central Hudson to make improvements in its electric and gas system.
In addition, shareholders approved executive compensation related to the merger.
Tim Winter, a utility analyst at Gabelli & Co. in St. Louis, said that as is usually the case in a Fortis takeover, CH Energy will retain its independence.
“Utilities, often when they merge, the headquarters are in the buying company”™s city, employees are reduced, you lose the provincial pride you had in your local utility; that”™s not the way this will happen. The headquarters will remain in Poughkeepsie, a lot of corporate citizen initiatives will remain.”
Winter said that CH Energy will get the scale Fortis will bring. As for whether CH Energy was actively looking for a buyer, “they were not necessarily on the auction block but they did an analysis, the board did, to see if there would be a better buyer or offer and they came to conclusion there would not be.”
He did note that the price was at the higher end of typical earnings multiples, seven to 11 times over EBITDA (earnings before interest, taxes, depreciation and amortization). The price of this deal, he said, was 10 times over earnings.
Taking a look at the big picture, Winter said this is just another chapter in the ongoing consolidation of utilities that stretches back about 20 years. “This will continue,” he said, “and Canadian buying of U.S. utilities is becoming more commonplace. Emera (of Nova Scotia) bought Maine and Maritimes Corp. (parent of Maine Public Service Co.) in 2010, Central Vermont was bought by Gaz Metro of Montreal in 2011. So this is the third Canadian acquisition of a Northeast utility in recent years.” In addition, he said, Edmonton Power in 2011 bought water utilities in Arizona and New Mexico and energy distribution properties in the southwestern U.S.
Winter speculated that perhaps Fortis wanted a way to get shale gas or power into New York City, “and maybe they needed to go through Poughkeepsie.”
