Less than a year after Fortis was outbid for an integrated electric utility in Vermont, the power distribution company has come back to the table with a new offer for a different firm.
On Tuesday, Fortis announced a $1.5-billion (U.S.) bid, including debt, for CH Energy Group Inc. , a New York energy delivery company. Its main business, Central Hudson, is mostly engaged in distributing electric power, with the remaining one quarter of its operations focused on natural gas.
The deal comes after Fortis was outbid by Gaz Metro in its quest to acquire Central Vermont Public Service Corporation for $700-million, including debt, last year. That deal made a lot of sense for a Canadian company, because much of the energy sold by CVPS was acquired from Hydro-Québec. Moreover, CVPS is located in the coveted New England region, and Canadian firms have had their eyes on this for some time. Capital Power, for instance, has struck three acquisitions in the area.
Yet even though Central Hudson isn’t directly in New England -- it operates in eight counties of New York’s mid-Hudson river valley -- it still operates on the U.S. east coast. And the company’s stock has been on a tear of late, surpassing its previous all-time high around $53 last May, and only climbing higher since.
Still, there are now questions about the northeastern U.S.’s energy market. Since striking its deals south of the border, Capital Power's management has admitted that they aren’t earning back their money as quickly as they hoped because energy prices in the region remain low. In other words, the U.S. economic recovery is taking a long time to come together.
While there are a number of differences between a firm like Capital Power and Fortis -- the former is engaged in power generation, the later in distribution; Capital Power’s New England assets are natural gas focused, CH Energy mainly deals in electricity -- the comparison is still worthy of at least noting because they both play in the U.S. northeast power market.
But given that CH Energy is already performing well in this market, and factoring in that the U.S. economy is shoring up more quickly in 2012, the deal could be a big win for Fortis, especially because it helps to diversify its assets outside of Canada.