Fortis Inc. made a splash with its $700-million (U.S.) acquisition of Central Vermont Public Service Corp. early Monday morning, not only because it is the firm's first foray south of the border, but also because the deal comes on top of a $5.5-billion capital expenditure program.
When Fortis reported strong first-quarter earnings earlier in May, management made it clear that it was still intent on spending $5.5-billion over the next five years to drive organic growth. It also didn't rule out any acquisitions that compliment this growth, and this purchase fills that criteria.
CVPS is Vermont's largest utility, serving about 160,000 customers throughout the state. By adding CVPS to its portfolio, he Fortis is able to stay on par with rival Capital Power Corp. south of the border, considering that Capital Power has scooped up three New England assets in the past few months.
Fortis's also makes economic sense. Although the numbers are still being crunched, BMO research estimated that Capital Power probably paid half of what it would cost to build a new power generation plant when it made its last New England purchase.
To help pay for the acquisition, Fortis announced at $300-million bought deal of common shares at a tight 2-per-cent discount to Friday's close. These funds are needed because Fortis is paying for the purchase in cash, something that probably helped it to win the bidding process. The price paid to CVPS shareholders equates to a 44 per cent premium.
As for future capital expenditures, Fortis will continue to fund its $900-million (Canadian) Waneta hydroelectric project in British Columbia that should come online in 2015. There is also speculation that the company could put money into natural gas fuelling stations that are used by large industrial vehicles.
Scotia Capital and RBC Dominion Securities co-led the bought deal.
Tim Kiladze