FirstEnergy buyout to form power giant

February 12, 2010 at 12:00a.m.

ASSOCIATED PRESS

Utility company FirstEnergy said Thursday that it is buying rival Allegheny Energy for about $4.7 billion in stock in a deal that will create one of the nation’s largest power companies with customers from Ohio to New York.

The acquisition will create a company with 10 utilities serving 6 million customers in seven states, with $16 billion in annual revenue and $1.4 billion in profit.

FirstEnergy is touting the opportunities that come with its bid for Allegheny — a 70 percent increase in power generation, a more diversified portfolio of power plants and adjacent geographic footprints that could bolster growth opportunities while saving money.

“It’s a natural fit that has the potential to produce lower risk, higher growth, a cleaner generation fleet, a stronger balance sheet and increased earnings,” Anthony Alexander, FirstEnergy’s president and CEO, told analysts In a conference call.

The deal is expected to close within 14 months.

Shareholders of Allegheny, based in Greensburg, Pa., will receive 0.667 shares of FirstEnergy common stock in exchange for each share they own. Based on Tuesday’s closing price, those shares will be valued at $27.65 and represent a 32 percent premium over Allegheny’s closing price of $21.02 Wednesday.

FirstEnergy also will assume $3.8 billion in debt.

Allegheny shares jumped $2.53, or 12 percent, to $23.55 Thursday. FirstEnergy shares fell $1.87, or 4.5 percent, to $39.59.

There haven’t been many big deals in the power sector recently. The recession has made financing difficult to get and has crippled demand for power generation, especially among industrial customers. That has forced utilities to slash costs and cut projects. At the same time, trying to complete mergers that must be approved by utility regulators in several states can slow the process.

Exelon, based in Chicago, backed off its bid to buy NRG Energy, based in Princeton, N.J., after NRG said the offer was too low. French power company EdF recently bought half of the nuclear- power business of Constellation Energy for about $4.5 billion.

FirstEnergy also said Thursday that its fourth-quarter profit fell by 40 percent, in part because of continued weak demand for power generation, especially among steel and automotive customers.

The companies said the deal makes sense in several respects. FirstEnergy serves 4.5 million customers in Ohio, Pennsylvania, New Jersey and New York whose family of utilities includes Ohio Edison, Cleveland Electric Illuminating, Toledo Edison and Jersey Central Power and Light.

Allegheny has 1.6 million customers in Pennsylvania, West Virginia, Maryland and Virginia with utilities that include Allegheny Power and Potomac Edison. The deal will make FirstEnergy the largest utility in Pennsylvania, with 2 million customers.