* To pay $30/shr in cash; a 9 pct premium
* To assume $1.2 bln of debt
* AES cuts 2011 adj EPS view to $0.97-$1.03
* AES shares up 5 pct; DPL stock up 9 pct (Adds conference call, analyst comments; updates shares)
By Krishna N Das
BANGALORE, April 20 U.S.-based global power provider AES Corp is to buy rival DPL Inc for $3.5 billion as it braces for huge environmental and plant upgrade costs and looks to secure steady returns from regulated electricity businesses.
Deal activity in the power sector has jumped as companies, stung by falling electricity prices, face a double whammy of regulations requiring power grid upgrades and new environmental controls as well as new-generation power plants.
PPL Corp last month snapped up German utility E.ON AG's (EONGn.DE) UK power networks for 3.5 billion pounds ($5.71 billion), while Duke Energy is to buy Progress Energy for $13.7 billion.
Southern and DTE Energy are among those who have said the U.S. Environmental Protection Agency is being too aggressive in calling for power plants to meet new rules within three years, and could put the reliability of the electric grid at risk. [ID:nN15300390]
Arlington, Virginia-based AES said DPL shareholders would be paid $30 a share in cash -- 9 percent more than the stock's Tuesday close. AES would also assume $1.2 billion of DPL debt.
The deal should help AES, which operates in 28 countries, save $5-$10 million before tax a year, an executive said on a call with analysts.
The acquisition of DPL, which serves over 500,000 customers in West Central Ohio and runs 3,800 megawatts of power generation facilities, will add to AES' regulated power profile that made up for more than half its total annual revenue last year.
"The acquisition is expected to be value and earnings accretive, benefiting from the regional scale provided by our nearby utility business at Indianapolis Power & Light Company," AES Chief Executive Paul Hanrahan said.
And as companies look at ways to manage costs, analysts say consolidation is the way to go.
Barclays Capital analyst Gregg Orrill said there could be a rival offer for DPL, but added "bidding wars are somewhat rare for regulated utilities."
Analysts have long expected the fragmented U.S. power sector to consolidate into larger regional companies, though resistance from regulators has scuttled mergers over the past decade.
State regulators seek huge concessions such as rate reductions from companies planning to combine. In the last decade, planned mergers of FPL Group and Constellation Energy , as well as Exelon and Public Service Enterprise Group , fell apart over regulatory issues.
AES expects regulatory approval within 6-9 months.
"Given the amount of leverage and the credit quality issues associated with this one, you would continue to see a considerable amount of scrutiny," Glenrock Associates analyst Paul Patterson said.
Barclays' Orrill noted: "The approval process is straightforward as DPL has only the Ohio jurisdiction."
Brian Miller, executive vice president at AES, said he saw no problem with the approval process in Ohio.
Bank of America Merrill Lynch acted as the financial adviser for the deal, AES said.
To account for a cost of 11 cents due to the DPL deal, AES cut its 2011 adjusted earnings view to $0.97-$1.03 a share. [ID:nASA01Y91]
DPL will have to pay a fee of $106 million if the deal is terminated.
AES shares last traded up 5.3 percent at 13.13 on Wednesday, while those of Dayton, Ohio-based DPL were up 9 percent at $30.02 on the New York Stock Exchange. (Reporting by Megha Mandavia and Krishna N Das in Bangalore; Editing by Mike Nesbit and Saumyadeb Chakrabarty)