Emera Incorporated agrees to merge with Canadian Utilities Limited
Canadian Utilities Class A holders other than ATCO would receive Emera shares, while ATCO holders would also get stock in a planned spinoff.
Ines Halvorsen
On Oct. 6, a 0.755-share exchange for Canadian Utilities Class A holders other than ATCO formed part of a merger agreement Emera Incorporated TSEEMA NYSEEMA signed with Canadian Utilities Limited TSECU. Emera holders would own about 60 per cent of the resulting company, which the parties estimate would have approximately C$72 billion in enterprise value.
ATCO Ltd. TSEACO.X TSEACO.Y, Canadian Utilities' controlling shareholder, is the third party to the definitive arrangement announced Tuesday. For each ATCO share, its holders would receive 0.865 of an Emera share and one share in New ATCO, an industrial services business to be spun out alongside the merger.
Canadian Utilities Class A holders other than ATCO would receive 0.755 of an Emera share for each share held; its Class B holders other than ATCO would receive 0.819. The companies expect Canadian Utilities shareholders to own about 40 per cent of the combined utility and project an approximately 20 per cent increase in their dividend income.
At the Oct. 5, 4 p.m. EDT close in Toronto, Emera TSEEMA traded at C$68.30. At that price, the 0.755-share exchange implied about C$51.57 in Emera stock per Canadian Utilities Class A share. Canadian Utilities TSECU closed at C$51.20 in Toronto on Oct. 5 at 4 p.m. EDT. The exchange implied a premium of about 0.7 per cent at those Oct. 5, 4 p.m. EDT closes for TSEEMA and TSECU.
Regulated Utilities Would Supply Most Earnings
The companies estimate that about 95 per cent of the combined company's earnings would come from regulated utilities. They expect roughly 80 per cent of earnings to come from Florida and Alberta, extending Emera holders' exposure to the Alberta business and Canadian Utilities holders' exposure to Florida.
Emera currently draws about 70 per cent of its operating earnings from Florida, according to the Oct. 6 release. Canadian Utilities draws about 80 per cent from Alberta. The planned combination would serve around six million customers with approximately C$45 billion in rate base across Canada, the United States and other markets.
The companies plan C$32 billion in capital investment through 2030 and forecast average annual rate-base growth of 7 to 8 per cent. Those are projections in the merger announcement, while the three businesses will continue operating independently until the transaction closes.
"This merger creates a Canadian utility and energy infrastructure powerhouse with the scale, financial capacity and expertise to invest in the systems our customers will rely on for decades," Emera chief executive Scott Balfour said in the Oct. 6 release.
New ATCO would retain ATCO's housing and defence businesses, along with investments that include ports and retail energy. The combined utility would keep Emera's public headquarters in Halifax and Canadian Utilities' corporate and operational headquarters in Calgary, Edmonton and Perth, Australia.
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All three boards approved the transaction after reviews that included independent special committees at ATCO and Canadian Utilities. ATCO's controlling shareholder, Sentgraf Enterprises, signed a voting support agreement. The proposed C$32 billion investment plan runs through 2030, after the companies complete the combination.
