May 28, 2013 / 11:46 AM / 4 years ago

UPDATE 2-Teco Energy widens customer base with $750 mln gas utility buy

* To assume about $200 million in debt

* Says deal will increase customer base by 50 percent

May 28 (Reuters) - Teco Energy Inc said it would acquire New Mexico Gas Co from utility holding company Continental Energy Systems LLC for about $750 million to increase its customer base by 50 percent.

The deal, which takes Teco Energy outside Florida, will add about 509,000 customers, mainly residential, in New Mexico.

Teco Energy, the parent of Florida utilities Tampa Electric and Peoples Gas System and coal producer Teco Coal, will also assume about $200 million of New Mexico Gas Co’s debt.

Teco Energy units will serve more than 1.5 million regulated electric and gas utility customers in Florida and New Mexico upon the close of the deal, which is subject to state and federal regulatory approvals, Teco Energy said.

Almost 90 percent of Teco Energy’s earnings before interest, taxes, depreciation, and amortization (EBITDA) comes from regulated electric and gas operations, Chief Financial Officer Sandra Callahan said on a conference call with analysts.

The New Mexico Gas deal gives Teco Energy a platform to invest in the gas utility business, Gabelli & Co analyst Timothy Winter said.

Unfavorable weather and weak customer growth have hit its Tampa Electric unit. Another subsidiary, Teco Coal, has been hit by faltering demand due to weak natural gas prices.

Peoples Gas, on the other hand, continues to perform well and Teco Energy has identified compressed natural gas and industrial conversion as growth opportunities.

“We like utilities in the Sunbelt area because they tend to grow more ... we do see some other opportunities in the area that could possibly make sense but that is a little ways down the road,” Teco Energy Chief Executive John Ramil said on the call.

The New Mexico Gas deal, expected to add to earnings in 2015, is likely to close in the first quarter of 2014.

“On a pro forma basis, combining the two businesses, it is modestly dilutive,” said Gabelli analyst Winter.

Teco Energy shares were down 2.5 percent at $17.83 in morning trading on the New York Stock Exchange on Tuesday.

New Mexico Gas had EBITDA of $86 million in the 12 months to Jan. 31.

Morgan Stanley was Teco Energy’s financial adviser. Skadden, Arps, Slate, Meagher & Flom LLP and Cuddy & McCarthy LLP are the legal advisers.

Credit Suisse Securities and Tudor, Pickering, Holt & Co are Continental Energy Systems’ financial adviser and Cravath, Swaine & Moore LLP the legal adviser.

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