Please ensure Javascript is enabled for purposes of website accessibility

Merger Agreement Sends Empire District Electric Co's Stock Soaring

By Matthew DiLallo – Feb 10, 2016 at 12:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The utility agrees to be acquired by Algonquin Power & Utilities Corp.

 

What: Shares of Empire District Electric (NYSE: EDE) jumped more than 16% by 11:30 a.m. EST on Wednesday. Sparking the rally was the announcement that the company was being acquired by Canadian-based Algonquin Power & Utilities (AQN).

So what: Empire District Electric has agreed to be acquired in an all-cash deal for $34 per share, valuing the company at $2.4 billion. That purchase price represents a 21% premium to the company's closing price on Monday and is 50% above its closing price in early December, which was before the company announced that its Board of Directors was in the early stages of exploring strategic alternatives. In other words, this merger agreement is outcome of that process.

This transaction is the second acquisition by a Canadian-based utility of a U.S.-based utility this week, with Fortis' (FTS) agreement to buy ITC Holdings (ITC) for $6.9 billion in cash-and-stock the other deal. Driving these cross boarder acquisitions is the fact that U.S. utilities are allowed by regulators to earn larger profits than Canadian utilities can earn. For example, ITC Holdings is allowed by FERC to earn a return on equity of 13%, which is much higher than the 9% that Fortis is allowed to earn. Further, Canadian buyers have cheaper access to financing, enabling them to pay more than U.S. companies can pay. That suggests that there won't likely to be any competing bids emerging to trump the agreed upon transactions.

Now what: This transaction will require a pretty lengthy regulatory process and Empire District Electric doesn't expect the deal to close until the first quarter of 2017. Not only do state commissions need to approve the deal, but because it is a cross-border deal Federal regulators need to approve it as well. That lengthy and complex approval process adds to the risk that the deal might fall through, which is why existing shareholders are better off cashing in now since this is an all-cash deal, even if they are leaving a little money on the table.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends ITC. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

ITC Holdings Corp. Stock Quote
ITC Holdings Corp.
ITC
Algonquin Power & Utilities Corp. Stock Quote
Algonquin Power & Utilities Corp.
AQN
Fortis Inc. Stock Quote
Fortis Inc.
FTS

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.