Stan Marshall, CEO of Fortis Inc., at the Seal Cove Power plant.The Globe and Mail
Canada's largest investor-owned utility, Fortis Inc. , has launched an ambitious U.S. growth strategy with a proposed $1-billion (U.S.) acquisition of CH Energy Group Inc. , an electric and gas utility in New York's Central Hudson Valley.
Like other Canadian utilities, St. John's-based Fortis is looking south of the border for expansion due to the paucity of takeover targets among regulated utilities in this country.
"There is just not anything left for us in Canada," Fortis chief financial officer Barry Perry said in an interview from Poughkeepsie, where CH Energy is based.
"This will not be the end of our acquisition plan," Mr. Perry said. "By the end of the decade, we expect to have as many assets in the U.S. as we have in Canada today. We're aiming for a 50/50 mix."
Mr. Perry said the CH Energy deal, which must be approved by regulators, represents a solid first step into the U.S. market, with a well-run, moderate-sized utility that has its own growth plan intact.
Fortis has been scouting for opportunities in the United States for five years. It failed in its first attempt to break into that utility market when Montreal-based Gaz Métro last year outbid it in a hostile takeover for Central Vermont Public Service whose board had previously agreed to a Fortis acquisition.
Fortis is offering CH Energy shareholders $65 (U.S.) a share, a 10.5-per-cent premium above the most recent closing price for the stock, which was just below its 52-week high. Fortis said the takeover will benefit CH Energy customers by allowing the company to invest more in service improvements.
Fortis said it will keep CH Energy's management team headquartered in Poughkeepsie, consistent with its practice of maintaining autonomous management structures in each jurisdiction.
Mr. Perry said CH Energy will benefit from Fortis's technological knowhow and low cost of capital to help finance its $100-million-a-year investment plan.
Fortis faces a year-long regulatory review by the New York Public Service Commission and will spell out customer benefits in more detail in the course of that hearing, CH Energy's spokeswoman Denise VanBuren said in a telephone interview.
"We see it as a win for our customers as well as our shareholders and our employees," Ms. VanBuren said.
She added that CH Energy management had not been looking for a buyer, but was approached by Fortis several months ago about a deal.
With $13-billion (Canadian) in assets, Fortis has been on a strong growth track over the past 10 years since acquiring electric and natural gas utilities in booming Alberta and in British Columbia. It is prepared to make acquisitions of up to $5-billion (U.S.) south of the border, with its focus mainly on the northeastern United States.
The company currently serves more than two million gas and electricity customers. Its regulated holdings include electric distribution utilities in five provinces and two Caribbean countries and a natural gas utility in British Columbia.
CH Energy has 300,000 electricity customers and 75,000 gas customers, and its acquisition would increase Fortis's asset base by 16 per cent.
In a presentation last month, Mr. Perry assured investors that Fortis would be disciplined in its growth strategy: chasing only acquisitions of regulated utilities that would quickly add to earnings per share, that maintain its growth track, and that do not jeopardize its credit rating.
The CH Energy deal meets those criteria, he said Tuesday.
CH Energy shares jumped more than 7 per cent to $66.22 (U.S.) on the New York Stock Exchange on Tuesday, suggesting that some investors expect a competing bid to top Fortis's $65 offer.