AEP to Acquire Central & South West
The nation’s third-largest utility said Monday it is paying $6.44 billion to create a giant power company serving 11 Midwestern and Southern states. The announcement came as two other big utility deals were falling apart.
The failures, however, will not slow the wave of electric and gas company mergers as more states move to loosen regulations and let customers choose their own power providers, as California is scheduled to do starting Jan. 1.
“Ultimately, they’re all going to come along. It will be a cascading effect--as one does it another will follow,” said Daniel Scotto, an analyst with Bear Stearns.
In the deal announced Monday, American Electric Power Co. of Columbus, Ohio, would spread into four new states with its planned purchase of Dallas-based Central & South West Corp., whose four electric utilities serve 1.7 million customers in Oklahoma, Texas, Arkansas and Louisiana.
“Our industry is undergoing massive change and restructuring. There’s no indication that things will be easing up any time soon,” said E.R. Brooks, chairman and chief executive of CSW.
AEP, through its seven subsidiaries, provides energy to nearly 3 million customers in Ohio, Indiana, Michigan, Kentucky, West Virginia, Virginia and Tennessee. AEP said about 1,300 jobs will be cut from a combined total domestic work force of about 26,000.
Under terms of the deal, AEP will swap 0.6 of its shares for each share of CSW. In trading Monday, AEP shares fell $1.25 to close at $50.75, while CSW shares rose $1.13 to $27.13. Both stocks trade on the New York Stock Exchange.
The companies, which also serve 4 million combined customers in England, now begin the lengthy process of convincing regulators they will not harm competition and increase rates--a stumbling block for some big utility marriages.
Baltimore Gas & Electric Co. and Potomac Electric Power Co. on Monday abandoned their $3-billion combination, saying regulators in Maryland and Washington, D.C., wanted to impose conditions that would have offset any financial benefits from the merger.
The AEP announcement also came after Western Resources Inc. on Friday scrapped the terms of its $2-billion purchase of Kansas City Power & Light, saying it would try to negotiate a better price. The value of Western’s shares has jumped since the stock swap was announced in February.
These failed deals, however, represent only a small portion of the industry’s merger boom over the last few years. Since 1994, $91.9 billion worth of utility deals have been announced, according to Securities Data Co. of Newark, N.J., including the pending combination of San Diego-based Enova Corp. and Los Angeles-based Pacific Enterprises.
