July 12, 2011 / 11:29 AM / in 6 years

UPDATE 3-Gaz Metro wins Vermont utility after Fortis bows out

* Gaz Metro to buy CVPS for $472 mln

* CVPS to pay Fortis $19.5 mln termination fee including expenses

* CVPS expects a few layoffs in executive positions

* CVPS shares down 4 pct; Fortis up slightly (Rewrites throughout with conference call, analyst comments, share movement)

By Amruta Sabnis and Gowri Jayakumar

July 12 (Reuters) - Gaz Metro struck a deal to buy Central Vermont Public Service Inc for $472 million after rival bidder Fortis Inc bowed out, paving the way for the combination of Vermont’s two largest electric utilities.

Quebec-based Gaz’s 25-year presence in Vermont and its promise of savings worth $144 million over 10 years for CVPS customers was enough to convince the parent of Vermont’s largest utility that Gaz would make a “financially strong parent.”

“That puts CVPS in a better position to borrow money, sign power contracts and make capital investments in generation, transmission and distribution assets needed to provide reliable service to our customers,” Larry Reilly, chief executive officer of CVPS, said in a conference call.

Gaz’s Green Mountain Power, the state’s second largest utility, and CVPS combined would serve about 70 percent of Vermont’s customers, or 250,000 customers, and Gaz also plans to set up a trust for low-income customers.

“It’s easy to imagine that ratepayers have more to benefit from the deal with Gaz than with Fortis,” said Pierre Lacroix, an analyst with Desjardins Securities.

CVPS’ shares, which had risen over 5 percent to close at $36 on Monday since Gaz made its bid last month on hopes of a higher proposal from Fortis, gave up most of those gains to trade down 2.5 percent at $35.08 on Tuesday morning on the New York Stock Exchange.

Fortis’ shares were up one percent at C$32.71 on the Toronto Stock Exchange.

Gaz’s bid valued CVPS shares at $35.25 each, a slim premium to Fortis’ offer of $35.10 a share, and the board of CVPS deemed Gaz’s offer to be superior, ending its deal with Fortis.

KeyBanc Capital Markets’ analyst Paul Ridzon said he had hoped CVPS shareholders would get a higher premium than just 15 cents a share to Fortis’ original bid, given the significant customer benefits.

He added that Fortis offer allowed two more dividend payments, while Gaz offered to continue with the company’s regular quarterly dividend of 23 cents a share until the deal closes.

Fortis, the largest investor-owned distribution utility in Canada, waived its right to negotiate with CVPS for at least five business days in exchange for $19.5 million in break-up fees and costs, it said in a separate statement.

Gaz, which is partly owned by Valener Inc , agreed to reimburse CVPS such costs after the deal won the required shareholder approval.

The sale is subject to approval of CVPS common shareholders, and U.S. federal and state regulators and is expected to close in the next in 6-12 months.

“I see that the time frame set by Gaz is achievable... regulatory approval should be no problem,” analyst Lacroix said.

CVPS does not expect any layoffs other than a small number of executive officers, and expects to generate savings through an efficient distribution of resources, equipment and facilities and improved purchasing power, CEO Reilly said.

However, Fortis’ proposal would have left the CVPS management team as well as its board in place, Chief Financial Officer Barry Perry had told Reuters last week.

The combined company would be based in CVPS’ headquarters in Rutland, Vermont. (Reporting by Amruta Sabnis and Gowri Jayakumar in Bangalore; Editing by Viraj Nair)

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