Reuters logo
E.ON selling U.S. unit to PPL for $6.7 billion
April 29, 2010 / 12:50 AM / 7 years ago

E.ON selling U.S. unit to PPL for $6.7 billion

NEW YORK/FRANKFURT (Reuters) - Germany’s E.ON (EONGn.DE), the world’s largest utility by sales, agreed to sell its Kentucky-based unit to U.S. peer PPL (PPL.N) for $6.7 billion (5 billion euros) in cash, as the U.S. utility refocuses on steadier, regulated operations.

The deal is the largest in the power sector in the last two and a half years, according to Thomson Reuters data.

PPL will be picking up Kentucky’s two largest utilities -- Louisville Gas & Electric Co and Kentucky Utilities Co -- in the deal. They serve about 1.2 million customers and operate about 7,600 megawatts of electric generation.

PPL’s shares fell nearly 8 percent after reports of the deal surfaced earlier on Wednesday.

PPL Chief Executive James Miller said the deal “will immediately improve PPL’s business mix by adding high-performing regulated utility operations” to its mix of regulated and unregulated operations.

Still, the deal is expected to be modestly dilutive in the first full year after the combination closes and accretive to earnings by 2013.

PPL was likely attracted to the assets because they were regulated and predictable, according to Dudack Research Group utility analyst Daniele Seitz.

The company’s management has recently been stung by its unregulated operations that sell power into the open market at competitive prices, she said. The economic downturn has taken its toll on electricity prices in recent years due to weak power demand.

“They’ve felt really uncomfortable being thrown around by the market,” Seitz said. “They were looking for something that was secure, strong and basic.”

PPL said it will also assume $925 million of debt and receive tax benefits of $450 million as part of the deal. The company has committed bridge financing for the transaction from Bank of America Merrill Lynch and Credit Suisse.

After the deal, PPL said it will now own or control about 20,000 megawatts and serve nearly 5 million electricity customers in the United States and the United Kingdom. Annual revenue will be around $10 billion, the company said.

LARGEST U.S. UTILITY DEAL THIS YEAR

The sale, one of a slew of divestments by European utilities to cut debt after a takeover spree, is part of E.ON’s efforts to shed more than 10 billion euros worth of assets by the end of the year.

Reports of the auction surfaced last month in Reuters and other news outlets. Sources told Reuters that PPL, U.S. utility Duke Energy (DUK.N), and a consortium involving Canadian utility Fortis (FTS.TO) were the last remaining parties bidding.

The sale is at the high end of what was expected -- analysts such as Mario Kristl from DZ Bank had estimated the division, formerly known as LG&E, to be worth as much as 5 billion euros ($6.66 billion).

The transaction is the largest takeover in the utility sector worldwide since October 2007, when TXU Corp was taken over by a group of investors including Kohlberg Kravis Roberts (KKR) and Texas Pacific Group (TPG).

It follows a string of recent transactions in the U.S. power sector, including Ohio’s FirstEnergy Corp (FE.N) $4.4 billion all-stock takeover of Pennsylvania’s Allegheny Energy Inc AYE.N.

Utility deals in the United States are drawn-out procedures which face tough scrutiny from states and regulators, which have caused several large proposed combinations to fall apart in the last decade.

The deal will require approval in Kentucky, Virginia, Tennessee, and by federal regulators. PPL expects the deal to close by the end of the year.

E.ON’s divestments are meant to reduce E.ON’s economic net debt, which soared to 45 billion euros by the end of 2009, from 18 billion at the end of 2006.

E.ON said early on Thursday that the sale gave it room for organic growth and streamlined its portfolio. The power provider will surpass its 10 billion euro target for asset sales, if the transaction is completed successfully.

E.ON had to cancel the sale of its Italian gas grid earlier this month.

E.ON also operates U.S. wind farms as part of its renewables business and not the E.ON U.S. unit.

Goldman Sachs advised E.ON on the sale. Bank of America and Credit Suisse advised PPL.

PPL also said it expects to announce first quarter net earnings next week of 66 cents a share, up from 64 cents a share last year. It expects its earnings from ongoing operations will be 94 cents a share, which compares with the analyst estimate of 86 cents a share, according to Thomson Reuters I/B/E/S.

The company also reaffirmed its 2010 forecast for earnings from ongoing operations of $3.10 per share to $3.50 per share.

PPL shares fell $2.13, or 7.7 percent, to $25.60 on the New York Stock Exchange on Wednesday.

($1=.7508 euros)

Editing by Mike Nesbit; Marguerita Choy and Carol Bishopric

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below