A premier diversified utility
Wisconsin Energy Corporation
) has inked a definitive agreement with
Integrys Energy Group, Inc.
) to acquire the latter. Wisconsin Energy will invest a total of
$9.1 billion, consisting of cash, stock and assumed debt. Subject
to customary approvals, the deal is expected to close in the summer
of 2015. The combined entity will be named WEC Energy Group, Inc.
What Wisconsin Energy Offers?
Per the agreement, the shareholders of Integrys Energy will receive
a total of $71.47 per Integrys Energy share, which includes a
combination of 74% stock and 26% cash. The shareholders of Integrys
Energy will receive 1.128 shares of Wisconsin Energy common stock
and cash of $18.58 for every Integrys Energy share they own.
Post transaction, the shareholders of Wisconsin Energy will obtain
72% ownership of WEC Energy Group while Integrys Energy will hold
the remaining 28% stake.
Leading Midwest Utility Play in the Making
If approved, WEC Energy Group will be headquartered in Milwaukee,
WI, besides having three other headquarters in Chicago, Green Bay
WEC Energy Group, through its units We Energies, Wisconsin Public
Service, Peoples Gas, North Shore Gas, Minnesota Energy Resources
and Michigan Gas Utilities, will serve nearly 4.3 million
electricity and natural gas customers in the Midwestern states of
Wisconsin, Illinois, Michigan and Minnesota. In addition, WEC
Energy Group will obtain a 60% stake in American Transmission
The combined entity's power generation capacity will be 8,803
megawatt (MW). It will operate around 71,000 miles of electric
distribution lines and over 44,000 miles of gas transmission and
The regulated rate base growth for the combined unit is estimated
at $16.8 billion for 2015.
Both the utilities, Wisconsin Energy and Integrys Energy along with
their customers and investors stand to benefit from the proposed
transaction. The consolidated WEC Energy Group will bring about
economies of scale with the ability to efficiently execute
long-term growth plans and focus on strategic objectives, while
improving shareholder value. In fact, the deal is expected to be
accretive to Wisconsin Energy's earnings in the first full calendar
year after closing.
Currently, Wisconsin Energy has no operations in Illinois. The
proposed deal will help to expand operations in the state and
unlock future prospects.
As both Wisconsin Energy and Integrys Energy have similar lines of
operations and a complementary footprint, the combined unit will be
better able to meet the increasing demand for utility services in
Wisconsin Energy is currently focused on improving its aging
distribution infrastructure. The company plans to invest a
substantial part of its $6.5-$7.1 billion capex budget on upgrading
and modernizing its utility delivery infrastructure over the
2014-2023 frame. Post transaction, WEC Energy Group will follow
Integrys Energy's five-year capital investment plan worth up to
$3.5 billion under the infrastructure and operational initiatives.
The joint infrastructure development efforts will enable WEC Energy
Group to provide reliable services to its customers.
The dividend policy of WEC Energy Group is expected to be accretive
to all shareholders in the future. Until the deal closes Wisconsin
Energy plans to maintain its existing dividend policy with an
annual increase of 7%-8%. The dividend payout is expected to
increase post-merger, in line with WEC Energy Group's dividend
Large Deals in the Utility Sector
An inorganic growth strategy continues to act as the easiest way
for utilities to expand their scale of operations. In Apr 2014,
) entered into a definitive agreement to acquire
Pepco Holdings, Inc.
) for around $7 billion. Exelon plans to close the transaction in
the second half of 2015, subject to the necessary approvals.
Wisconsin Energy currently has a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
WISC ENERGY CP (WEC): Free Stock Analysis
PEPCO HLDGS (POM): Free Stock Analysis Report
EXELON CORP (EXC): Free Stock Analysis Report
INTEGRYS ENERGY (TEG): Free Stock Analysis
To read this article on Zacks.com click here.