FirstEnergy to Acquire Allegheny in $8.5 Billion Deal

Ohio-based power company FirstEnergy Corp. last week announced it plans to buy Pennsylvania’s Allegheny Energy in a $4.7 billion deal. The stock-for-stock transaction—valued at $8.5 billion—is expected to create one of the largest U.S. utilities.

Under terms of the agreement, FirstEnergy would assume about $3.8 billion in Allegheny net debt and own 73% of the combined company. Allegheny shareholders would own the remaining 27%. The companies said they expect to complete the transaction within 12 to 14 months.

If the deal were finalized, the combined company could increase FirstEnergy Corp.’s annual revenues by $16 billion, retain the FirstEnergy name, and be headquartered in Akron, Ohio. The new company would also oversee more than 24,000 MW of installed generating capacity from a mix of regional coal, nuclear, natural gas, oil, and renewable power. The combined company would also parent 10 regulated electric distribution companies, which provide services to more than six million customers in Pennsylvania, Ohio, Maryland, New Jersey, New York, Virginia, and West Virginia.

“Among other benefits, it would increase generation resources by 70 percent, more than double the amount of supercritical coal capacity, improve the overall environmental performance of the generation fleet, and increase our customer base by 35 percent,” said FirstEnergy President and CEO J. Alexander in a statement last week. “We also expect to create significant efficiencies and economies of scale as we share best practices across the new organization.”

The Allegheny-FirstEnergy deal must be approved by shareholders of both companies, then be approved by Pennsylvania’s Public Utility Commission, the Maryland Public Service Commission, the Virginia State Corporation Commission, the West Virginia Public Service Commission, and the Federal Energy Regulatory Commission. Then, the Securities and Exchange Commission must approve FirstEnergy’s issuance of shares to pay for Allegheny.

But the deal could see hurdles from those regulators, who have opposed large mergers—such as those between FPL Group and Constellation Energy, and Exelon and Public Service Enterprise Group—based on concerns that prices could rise while services would decline.

Sources: FirstEnergy, Allegheny, POWERnews