Fortis Inc., a Canadian utility company, said Wednesday that it plans to buy power provider UNS Energy Corp., the parent company for Tucson Electric Power Co. for $2.5 billion, expanding its business into Arizona. Fortis will pay $60.25 per share for UNS Energy. That’s 31% above UNS Energy’s closing price of $45.84. Fortis will also assume $1.8 billion in debt. The companies said Wednesday that they value the deal at $4.3 billion.
UNS Energy, headquartered in Tucson, Ariz., provides electricity and natural gas services to more than 650,000 customers in the state through its two subsidiaries, Tucson Electric Power and UniSource Energy Services. Those companies will remain in Tucson Fortis said. The deal is expected to close by the end of 2014. Excluding costs related to the acquisition, Fortis expects the deal to boost its earnings per share within the first year.
Fortis serves about 2.4 million customers in Canada, New York and the Caribbean. In June, it paid nearly $1 billion to acquire New York gas and electric utility Central Hudson Gas and Electric Corp. Shares of UNS Energy jumped $13.56, or 30 per cent, to $59.40 in after-hours trading Wednesday. Fortis shares trade on the Toronto Stock Exchange.
In 2004, the Corporation Commission rejected a proposed private leveraged buyout of UNS, then known as UniSource Energy Corp., by a group led by Kohlberg Kravis Roberts & Co. That deal was for $25.25 per share, or a total of nearly $3 billion, but regulators winced at the addition of up to $660 million in new debt. But in contrast to leveraged-buyout, Fortis — which recently closed on the purchase of a New York utility — has a strong reputation for its utility management, said Maurice E. May, an analyst with Power Insights/Wellington Shields. Based in St. John’s, Newfoundland, Fortis is the largest investor-owned distribution utility in Canada. It serves more than 2 million customers through electric utilities in five Canadian provinces and two Caribbean countries, and a natural gas utility in British Columbia.
Fortis has announced a strategy of acquiring small- to mid-sized American utilities in the U.S., May said.
In June, Fortis completed a $1.5 billion buyout of CH Energy Group, the parent company of Central Hudson Gas & Electric Corp. in New York. So far, the company has retained local management of acquired utilities and allowed them free hand to run their businesses, May said.
The Fortis deal would give UNS greater access to capital and perhaps other resources, May said.