Shares of SCANA Corporation (SCG) rocketed on Wednesday and were up 23% at 10:30 a.m. EST. Powering the surge was the announcement that it would combine with Dominion Energy (D 0.76%) in an all-stock deal.
SCANA Corporation agreed to merge with Dominion Energy in a stock-for-stock deal, with SCANA investors receiving 0.669 shares of Dominion stock for every share of SCANA stock they own. The transaction values the company at $7.9 million, or $14.6 billion after including the debt that Dominion will assume as part of the deal.
For Dominion, the deal will bolster its size, with the combined company serving 6.5 million electric and natural gas customers in eight states. Further, Dominion believes the acquisition will be immediately accretive to earnings and enhance its earnings-per-share growth. In fact, the company estimates that the merger will boost its compound annual earnings-per-share growth target through 2020 to 8% or higher, up from the previous view that profits would increase 6% to 8% through 2020.
Meanwhile, for SCANA investors, the deal will enable them to salvage some value after a disastrous 2017, when the stock plummeted nearly 46% after the company pulled the plug on a nuclear project in South Carolina when its contractor went bankrupt. The company and its joint-venture partner initially expected the project to cost $11.5 billion, but they abandoned construction after that estimate soared above $25 billion. While ratepayers in South Carolina were on the hook for most of the incurred costs, legal battles threatened to push those expenses back on SCANA, which investors worried would significantly impair its ability to operate.
That said, by agreeing to merge with Dominion, ratepayers in South Carolina would see significant savings because Dominion would write off more than $1.7 billion of the failed-project's cost. Further, the company would pay out $1.3 billion to consumers (or about $1,000 for the average residential customer), while also reducing rates by about 5%, saving the average customer $7 per month.
The deal looks like a win for everyone involved. SCANA investors will recoup some of the value they lost last year, while also joining forces with Dominion to create a stronger company. Dominion, meanwhile, gets to expand its footprint for a bargain price, which will enhance its growth prospects. Finally, even SCANA customers in South Carolina -- myself included -- win, since we'll enjoy lower electricity rates and can recoup some of the costs we've paid toward the failed project.