Spain's Iberdrola to buy UIL Holdings for about $3 billion

Thu Feb 26, 2015 5:44am EST
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By Supriya Kurane and Jose Elías Rodríguez

(Reuters) - Spanish utility Iberdrola SA (IBE.MC: Quote) will buy UIL Holdings Corp UIL.N for about $3 billion to create a new listed power and gas company and expand in the United States, where it hopes to offset falling profits at home.

A world leader in wind turbines, Iberdrola joins other European companies seeking to grow via acquisitions outside sluggish domestic markets. Last year, German engineer Siemens (SIEGn.DE: Quote) agreed to buy U.S. turbine maker Dresser-Rand DRC.N.

Iberdrola's earnings have been hit hard by Europe's economic crisis, as well as by energy reforms in Spain, where new power generation taxes and renewable cutbacks dented profits.

As a result, Chairman Ignacio Sanchez Galan has vowed to slash domestic investments and expand abroad, especially in the United States and Mexico. The company already owns Scottish Power and U.S. Energy East, bought in 2006 and 2007, before Spain's financial crisis.

JP Morgan analysts said the agreed deal, which values UIL at around 10 times forecast earnings before interest, tax, depreciation and amortization, was not cheap, but that UIL would contribute valuable growth projects and potential synergies. They have an "overweight" rating on Iberdrola's shares.

Iberdrola will combine its U.S. unit with UIL and list the new company on a U.S. exchange. The companies did not say on which exchange it would be listed.

The Spanish firm said UIL shareholders would receive one share in the new company for each share they own and an additional cash payment of $10.50 per share, or $597 million.

The proposed deal implies a total value of $52.75 per share, including the cash component, representing a 25 percent premium to UIL's closing price on Feb. 25.   Continued...

The logo of Spanish power company Iberdrola is seen on top of Iberdrola's main office building in Madrid October 6, 2014.  REUTERS/Susana Vera