USD 10.4 BN DEAL - Emera to Acquire TECO Energy in US$10.4 Billion Transaction
Emera to Acquire TECO Energy in US$10.4 Billion Transaction
Acquisition is expected to be significantly accretive to EPS
Highlights:
- EPS accretion expected in the first full year of operations (2017)1, growing to more than 10 percent by the third full year (2019)1.
- TECO Energy shareholders will receive US$27.55 per share in cash, a 48 percent premium to the unaffected closing share price of July 15, 2015.
- The Transaction provides additional support to Emera’s 8 percent dividend growth target through 2019 and positions Emera to extend the dividend growth target beyond 2019.
- Upon closing, Emera will have approximately US$20 billion in assets, making it a top 20 North American regulated utility.
- The Transaction’s rate base multiple, excluding Net Operating Tax Losses, is 1.6 times2.
- The acquisition of TECO Energy is an ideal strategic fit for Emera due to its business and generation mix and expanded U.S. presence in constructive regulatory jurisdictions. The acquisition provides Emera with a new platform in growth markets, and further opportunities to supply customers with cleaner generation.
- Pro forma for the Transaction, Emera expects to maintain a strong investment grade credit profile with greater than 80 percent in regulated earnings.
- TECO Energy, Tampa Electric, Peoples Gas and New Mexico Gas Co. will maintain existing corporate headquarters in Tampa and Albuquerque.
Business Wire
HALIFAX, Nova Scotia & TAMPA Fla. -- September 4, 2015
Emera Inc. (“Emera”) (TSX: EMA):
This Smart News Release features multimedia. View the full release here:http://www.businesswire.com/news/home/20150904005751/en/
Highlights:
- EPS accretion expected in the first full year of operations (2017)1, growing to more than 10 percent by the third full year (2019)1.
- TECO Energy shareholders will receive US$27.55 per share in cash, a 48 percent premium to the unaffected closing share price of July 15, 2015.
- The Transaction provides additional support to Emera’s 8 percent dividend growth target through 2019 and positions Emera to extend the dividend growth target beyond 2019.
- Upon closing, Emera will have approximately US$20 billion in assets, making it a top 20 North American regulated utility.
- The Transaction’s rate base multiple, excluding Net Operating Tax Losses, is 1.6 times2.
- The acquisition of TECO Energy is an ideal strategic fit for Emera due to its business and generation mix and expanded U.S. presence in constructive regulatory jurisdictions. The acquisition provides Emera with a new platform in growth markets, and further opportunities to supply customers with cleaner generation.
- Pro forma for the Transaction, Emera expects to maintain a strong investment grade credit profile with greater than 80 percent in regulated earnings.
- TECO Energy, Tampa Electric, Peoples Gas and New Mexico Gas Co. will maintain existing corporate headquarters in Tampa and Albuquerque.
Emera Inc. (“Emera”) (TSX: EMA) and TECO Energy, Inc. (“TECO Energy”) (NYSE:TE) today announced a definitive agreement for Emera to acquire TECO Energy (the “Transaction”), creating a North American energy leader, with over US$20 billion of assets and more than 2.4 million electric and gas customers. Upon closing, TECO Energy will become a wholly owned subsidiary of Emera.
Under the terms of the all-cash deal, which has been unanimously approved by the Board of Directors of both companies, TECO Energy shareholders will receive US$27.55 per common share, a 48 percent premium based on TECO Energy’s unaffected closing stock price on July 15, 2015 (the last trading day prior to news reports regarding TECO Energy’s strategic review) and 25 percent above TECO Energy’s unaffected 52-week high. This represents an aggregate purchase price of approximately US$10.4 billion including assumption of approximately US$3.9 billion of debt.
The closing of the Transaction, which is expected to occur by mid-2016, is subject to TECO Energy common shareholder approval and certain regulatory and government approvals, including approval by the New Mexico Public Regulation Commission, the Federal Energy Regulatory Commission and compliance with any applicable requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of customary closing conditions.
Transforms Emera from Regional to North American Energy Leader
The Transaction creates a top 20 North American regulated utility with geographic diversity and significant growth potential. Based on pro forma financial information as at June 30, 2015, following the completion of the Transaction Emera’s total assets will increase to approximately US$20 billion, with 56 percent of those assets in Florida, 23 percent in Canada, 10 percent in New England, 6 percent in New Mexico and 5 percent in the Caribbean.
“Our patient approach and disciplined investment criteria have resulted in a pure-play regulated utility transaction that we expect to be significantly accretive for Emera’s shareholders, and one that advances our strategic objectives,” said Chris Huskilson, President and CEO of Emera Inc. “We have found our ideal match in TECO Energy.”
TECO Energy President and CEO John Ramil said, “TECO Energy’s team members have worked hard to consistently generate strong financial and operating results from our regulated businesses and have positioned the company well for long-term earnings growth. We are proud that Emera has recognized the value of our business and that our shareholders will be rewarded for their confidence in our company. The TECO team looks forward to contributing to Emera’s bright future and the opportunities for growth across the organization.”
Commitments to TECO Energy’s Communities and Customers
“The acquisition of TECO Energy is underpinned by a deep commitment to TECO’s existing employees and the Florida and New Mexico customers and communities they serve,” Mr. Huskilson said. “Emera recognizes that TECO Energy and its employees are a vital presence in Florida and New Mexico, and will look to preserve that presence by further investing in TECO Energy’s existing employee base and communities, as has been done in other Emera acquisitions.”
TECO Energy, Tampa Electric and Peoples Gas headquarters will remain in Tampa, Florida, and New Mexico Gas Co. headquarters will remain in Albuquerque, New Mexico. As part of Emera’s commitment to the customers and communities in which it operates, operating boards will be established in Florida and New Mexico with local representation on both boards.
Emera will work expeditiously with TECO Energy to engage the Florida regulators and to process the required New Mexico state regulatory application in order to close the Transaction as promptly as possible, with closing expected by mid-2016. Emera has committed to comply with all of the conditions contained in the New Mexico Public Regulation Commission order approving TECO Energy’s acquisition of New Mexico Gas Co. Emera has a history of successfully executing acquisitions in the U.S. and working constructively through the related regulatory processes at the U.S. state and federal levels.
Rates charged by Tampa Electric, Peoples Gas and New Mexico Gas Co. will remain unchanged except as allowed under Tampa Electric’s 2013 rate case settlement or as approved by the Florida Public Service Commission and the New Mexico Public Regulation Commission.
Transaction Highlights
The acquisition of TECO Energy accelerates Emera’s financial goals.
The Transaction is expected to be significantly accretive to Emera’s earnings per common share, with accretion expected in the first full year of operations (2017)1, growing to more than 10 percent by the third full year (2019)2. Further, it provides additional support to Emera’s 8 percent dividend growth target through 2019, and upon closing positions Emera to extend the dividend growth target beyond 2019.
Emera’s pro forma regulated earnings are projected to be greater than 80 percent of its total earnings. The Transaction further diversifies cash flows and, pro forma for the Transaction, Emera expects to maintain a strong investment grade credit profile.
Emera and TECO Energy operations are aligned.
Emera and TECO Energy both have commitments to environmental leadership. Tampa Electric and Emera’s Nova Scotia Power are both vertically integrated electric utilities on similar paths to reduce emissions and provide cleaner generation for their customers.
TECO Energy operates in growth economies.
TECO Energy’s operations are located in vibrant markets experiencing job growth and a strong housing market that are expected to contribute to some of the strongest customer growth in the U.S. The operations are also concentrated in what Dominion Bond Rating Service describes as the “highly constructive regulatory jurisdiction” of Florida3.
TECO Energy provides a new growth platform for Emera to apply its strategy, adding new geographies, regulatory and business diversification.
Upon closing, the Transaction expands Emera’s geographic platform into Florida and New Mexico – adding two new regions beyond its existing U.S. base in the Northeast. The Transaction will also establish Emera in the regulated natural gas local distribution business, which shares many of the key competencies of a regulated electric utility such as a safety culture, a customer service focus, asset management expertise and regulatory experience.
There are significant near-term capital and customer service investment opportunities. Taken together, the pro forma capital expenditure profile of the two companies includes approximately $6.4 billion in capital investments from 2016 to 2019.
TECO Energy’s utility operations will remain focused on reliably, safely and cost effectively providing energy and energy-related services at prices below national averages. Tampa Electric expects to invest more than US$2 billion over the next five years on facilities and infrastructure to serve customers, including the completion of the Polk Power Station Units 2 – 5 combined cycle conversion project. Peoples Gas expects to invest approximately US$100 million annually to maintain and expand its system to serve its growing customer base and reliably provide service. New Mexico Gas Co. expects to invest approximately US$60 million annually to support customer growth and improve reliability.
TECO Coal
Emera fully supports TECO’s ongoing efforts to divest TECO Coal, and expects TECO Coal to be divested at or prior to Transaction close.
Financing
Emera has a fully committed US$6.5 billion bridge financing facility in place with JP Morgan Chase and Scotiabank. Permanent financing of the transaction is expected to be obtained by one or more placements of common equity, preferred equity and long term debt, the timing of which is expected to be influenced by the regulatory approvals process and subject to prevailing market conditions.
Advisors
J.P. Morgan acted as lead financial advisor and Scotiabank acted as financial advisor to Emera. Legal advisors to Emera were Davis Polk & Wardwell LLP and Osler, Hoskin & Harcourt LLP.
Morgan Stanley acted as the lead strategic and financial advisor and Moelis & Company acted as financial advisor to TECO Energy. Skadden Arps, Slate, Meagher & Flom LLP and Holland & Knight LLP acted as legal counsel.