Fortis, Inc (TSX: FTS), a Canadian utility company, announced yesterday that it is acquiring CH Energy Group (NYSE: CHG) for $1B in cash plus the assumption of $500K in debt, which is about 10x 2011 EBITDA.
CH Energy, which is a public utility headquartered in Poughkeepsie, NY, said this about the benefits of the acquisition: “there are expected to be customer benefits that could include any or all of the following: offsetting or deferring future rate increases, enhancing the quality of service to customers or making that service more affordable. Customers will also benefit through adoption of Fortis best practices and enhanced access to capital to fund investments that will improve service and access to technology. And, our employees will benefit from enhanced opportunities in a larger, financially strong parent company that is committed to maintaining existing wages and benefits.”
Not compelling if you ask me.
The Fortis CEO said “This is the first step in our strategy to add value for Fortis shareholders by selective acquisitions within the United States of well-run, promising regulated electric and natural gas utilities.” He went on to basically say everything will stay as it is at CH Energy.
Maybe it’s just me, but I can’t figure out their “One Reason” for this acquisition. I expect it has more to do with financial engineering on cost synergies than anything else. When there is no clear strategic fit, I don’t get too excited about the success of the acquisition. Now there are loads of law firms claiming the Board should have shopped this deal to get the best value rather than agreeing to sell to Fortis.
Stay tuned, I expect there is more to come.