Becoming the latest deal in the U.S. power utility sector, gas and electric utility company CenterPoint Energy Inc. (CNP, Financial) announced on Monday it is buying rival Vectren Corp. (VVC, Financial) for about $6 billion, expanding its reach to serve more than 7 million customers in eight states.
According to the terms of the agreement, Vectren shareholders will receive $72 per share in cash, a premium of nearly 10% to the Evansville, Indiana-based company’s closing price on Friday.
In addition to diversifying the Houston-based company’s customer base and expanding its operations into Indiana and Ohio, Scott M. Prochazka, president and CEO of CenterPoint, said the deal represents “a significant step” toward its goal of leading in delivering energy, service and value.
“By combining our two highly complementary companies, we are creating an energy delivery, infrastructure and services leader that will drive value for our shareholders and customers, while enhancing growth opportunities for our businesses,” he said. “From the evolution of customer expectations to the development of innovative technologies, this is a time of extraordinary opportunity for our industry.”
Vectren Chairman, President and CEO Carl L. Chapman echoed that sentiment.
“Together, we will be a stronger, more competitive company that will be well-positioned to continue to provide value for our stakeholders in the years to come,” he said.
The combined company, which will be headquartered in Houston and have approximately $29 billion in assets, will run its natural gas utilities and Indiana electric operations out of Vectren’s main office. Prochazka will serve as president and CEO after the deal closes.
As part of the agreement, CenterPoint will also donate an additional $3 million per year for at least five years following the close of the deal to the Vectren Foundation, which supports education, environmental conservation and stewardship, as well as community revitalization and sustainability, across the company’s service territory.
CenterPoint will also assume all of Vectren’s outstanding net debt. According to GuruFocus, its long-term debt fell from $599.9 million in 2008 to $349.5 million in 2017.
CenterPoint maintained its guidance for earnings per share growth of 5% to 7% in 2019 and 2020, which excludes any charges related to the merger.
The deal is expected to close by the first quarter of 2019.
Stock price and guru shareholders
Following the announcement, CenterPoint’s stock was down more that 2% on Monday morning to $26.04. Vectren was up nearly 6% to $69.39.
GuruFocus estimates CenterPoint has lost 8% year to date, while Vectren has gained 8%.
Of the guru investors, Jim Simons (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) have positions in both companies. Simons is Vectren’s largest guru shareholder. Other shareholders include Leucadia National (Trades, Portfolio)  and Tom Russo (Trades, Portfolio).
CenterPoint’s other guru shareholders are Barrow, Hanley, Mewhinney & Strauss, Jeremy Grantham (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Mairs and Power (Trades, Portfolio).
Disclosure: No positions.
