(Reuters) - U.S. gas and electric utility CenterPoint Energy (CNP.N) said on Monday it would buy rival Vectren Corp (VVC.N) for about $6 billion, the latest in a string of mergers in the sector as power consumption in many parts of the country flattens.
The deal adds about 1.45 million customers across Indiana and Ohio. CenterPoint already serves customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas.
Consumers, companies and local governments are becoming more energy efficient and adopting conservation measures, resulting in a drop in consumption as well as prices. That has hit margins across the sector, leading a handful of companies to merge to cut costs and streamline operations.
Shares of CenterPoint, which is funding the deal using debt and equity, closed 2.8 percent lower at $25.94. Vectren was up 7.3 percent at $70.31, below CenterPoint’s offer price of $72 a share.
CenterPoint’s offer represents a premium of nearly 10 percent to Vectren’s Friday close.
“There’s a perception out there ... that CenterPoint overpaid for Vectren,” utilities analyst Shahriar Pourreza of Guggenheim Securities said, adding that there was “not a lot of accretion assigned to the deal”.
CenterPoint said it would continue to target earnings per share growth of 5-7 percent in 2019 and 2020 following the deal, which is expected to close in the first-quarter next year.
The newly formed company is expected to have electric and natural gas delivery operations in eight states with assets totaling $29 billion, the companies said in a statement.
CenterPoint Energy will also assume all outstanding Vectren net debt.
Reuters reported earlier on Sunday that both companies were nearing a deal.
Reporting by John Benny in Bengaluru; Editing by Saumyadeb Chakrabarty