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Iberdrola, Spain’s largest electric utility, will buy UIL Holdings Corp. of New Haven, Conn., for about $3 billion in cash and shares to expand its presence in the United States by owning a utility with 3.1 million consumers in Massachusetts and Connecticut.
The Spanish company said the sale will provide a 25 percent premium to UIL’s stock value.
Specifically, it will pay shareholders in UIL $52.75 per share, including $10.50 in cash and the remainder in stock in the new company. Iberdrola will own 81.5 percent of Iberdrola USA while UIL shareholders will own 18.5 percent.
Iberdrola will combine its American assets with UIL to create a U.S.-traded stock and also gains access to the country’s shale-gas business. As Iberdrola CFO Jose Sainz said Thursday during a conference call with reporters, UIL’s gas operation “allows us to become part of the nice cake which is the shale gas development in the U.S., so that’s attractive. I think we are going to cut a piece of that cake.”
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Expansion isn’t new to Iberdrola, based in Bilbao in Spain’s Basque Country. It already has grown appreciably in Spain and in the UK, employing a strategy of promoting wind power that had benefited from these countries’ once-generous subsidies for renewable energy. But as governments have been running low on cash since the financial crisis that began in 2008, those subsidies have shrunk.
And this isn’t Iberdrola’s first foray into the United States. It already has more than 60 enterprises in 24 states, and serves close to 3 million customers in the country, most of them in Maine, New Hampshire and New York State. It also runs Iberdrola Energy Holdings, one of the leading US gas-storage and -trading operations.
Once the sale is closed, UIL CEO James Torgerson will hold the same position at the new company created by the merger. Torgerson said the deal would make UIL “a more diversified and stronger utility as a group with greater scale and financial resources to support continued investment in system reliability and infrastructure projects.”
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The Iberdrola-UIL merger follows UIL’s failed effort a year ago to merge with Philadelphia Gas Works (PGW). PGW is the largest remaining municipally owned gas utility in the United States, and the purchase would have cost UIL $1.86 billion.
Philadelphia Mayor Michael Nutter supported the purchase, but it fell through in December because of political tension between Nutter and the City Council. And workers at PGW were outspoken in their concern that private ownership might affect them and the utility’s customers negatively.
Since that deal collapsed, however, many analysts said UIL, with its relatively small market capitalization of under $3 billion, was a prime candidate to be bought out by a larger utility, especially given the increased interest in the industry for consolidation. The merger with Iberdrola realized that expectation.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com