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In $4.7 Billion Deal, FirstEnergy of Ohio Is to Buy a Pennsylvania Utility

  • 02-12-2010
FirstEnergy of Ohio agreed on Thursday to buy Allegheny Energy of Pennsylvania for $4.7 billion in stock, creating a giant electricity provider with customers spread across the Midwest and mid-Atlantic.þþThe acquisition is a sign of what some analysts expect to be a wave of consolidation among energy producers to help lower costs and gain scale. But analysts and investors cautioned that regulators may stymie the deal, as they have with previous merger attempts between energy producers.þþThe combined company, which will retain FirstEnergy’s name and headquarters in Akron, Ohio, will have about six million customers, $16 billion in annual revenue and $1.4 billion in annual profit. It will own 10 distribution companies in seven states — Maryland, New Jersey, New York, Ohio, Pennsylvania, Virginia and West Virginia — and generate electricity from a mix of coal, nuclear, natural gas, oil and renewable energy sources.þþThrough the deal, FirstEnergy will raise its generating capacity to 24,000 megawatts, and it will have nearly 20,000 miles of high-voltage transmission lines across the Midwest and mid-Atlantic. It also expects to be better able to improve the environmental cleanliness of its fleet of power plants through the acquisition.þþWhile the chief executives of the two companies had long thought that a merger would make sense — the two worked together on projects in the past — it was not until late December that FirstEnergy and Allegheny began exploring a deal, Anthony J. Alexander, FirstEnergy’s chief executive, said in an interview on Thursday. Combined, the two companies will have a stronger balance sheet with plenty of cash to invest in new projects, he said.þþ“You see few mergers that have the same feature set and business logic that this merger does,” Paul J. Evanson, Allegheny’s chief executive, added.þþUnder the terms of the deal, Allegheny shareholders will receive 0.667 shares of FirstEnergy stock for every Allegheny share they own, worth about $27.65 at Wednesday’s closing prices. That represents about a 32 percent premium to Allegheny’s closing price on Wednesday and a 22.3 percent premium to the company’s 60-day average price. FirstEnergy will also assume about $3.8 billion of Allegheny’s debt.þþThe deal must still be cleared by several regulatory agencies, including the Federal Energy Regulatory Commission and regulators in Maryland, Pennsylvania, Virginia and West Virginia. Both Mr. Alexander and Mr. Evanson dismissed concerns that the deal would not gain regulatory approval.þþShares in Allegheny rose 12 percent, to $23.55, on Thursday, but remained below FirstEnergy’s offer price, worth about $26.41 at market close.þþAfter the deal’s completion, which is expected in 12 to 14 months, FirstEnergy shareholders will own about 73 percent of the new company.þþMr. Alexander will remain chief executive, and Mr. Evanson will become executive vice chairman. Mr. Alexander said he expected few job cuts among engineers but did not address other staff cuts.þþFirstEnergy said it expected the deal to add to its earnings in the first year after the deal is completed.þþFirstEnergy was advised by Morgan Stanley and the law firm Akin, Gump, Strauss, Hauer & Feld. Allegheny was advised by Goldman Sachs and the law firm Skadden, Arps, Slate, Meagher & Flom.þþ

Source: NY Times