Central Vermont Public Service agreed to accept a merger proposal from Fortis, Inc., Canada’s largest investor-owned utility on Monday. The $13 billion corporation based in St. John’s, Newfoundland, has offered to purchase CVPS for $700 million.
If the merger is approved by CVPS shareholders and Vermont regulators, it would be the third time in six years that a Vermont power generation entity has been sold to a Canadian firm. Green Mountain Power, the state’s second largest electric company, was bought by Montreal-based Gaz Metro in 2006. The Connecticut River dams were bought by the natural gas giant and power wholesaler Trans-Canada in 2005.
If the Fortis deal goes through, more than 70 percent of Vermont ratepayers would be served by Canadian companies.
CVPS is Vermont’s largest utility – it provides electricity to 160,000 customers in the state — but by regional and national standards, the company is small. CVPS is the last independent utility of its size in New England and one of the smallest utilities in the country, according to Lawrence Reilly, CEO of the Rutland-based electric company.
Fortis, on the other hand, is an industry giant. The company serves about 2.1 million gas and electricity customers. It owns a natural gas utility in British Columbia, Canada, and electric distribution utilities in five Canadian provinces and three Caribbean countries, according to a statement. Fortis also operates “non regulated generation assets” in Canada, Belize and New York state. The company also owns hotels and commercial office and retail space in Atlantic Canada.
The Fortis deal would not fundamentally change the way CVPS does business, Reilly said in an interview. The utility would continue to be managed in Rutland, and he said service standards would remain high.
“We don’t expect it to have any visible impact on customers,” Reilly said. “We’re very fortunate in a sense where we get the benefit of being part of a bigger family of companies.”
In a statement, Gov. Peter Shumlin took a wait-and-see approach.
“In a utility acquisition such as this, it is critical that the transaction serve the best interests of Vermont’s ratepayers and job creators,” Shumlin said. “While CVPS’s Board has cited benefits of retained management and control, I will examine this transaction for strong value to the customers in furtherance of our state’s priorities. I will also insist on a continuation of the extraordinary corporate ethic we expect here in Vermont.”
Reilly said he expects the state to “take a good long look at this as they should.”
“We think they’ll see the value of it to customers and employees and approve the sale,” Reilly said.
One of the key advantages of the merger, according to Reilly, is access to capital markets. Because CVPS is small, it is more difficult for the utility to obtain good financing rates, Reilly said. Creditors ask utilities to put up significant collateral before agreeing to long-term contracts with utilities, he said.
Reilly said the merger will also eliminate the costs of operating a public company. Fortis has offered to purchase CVPS’ 13 million shares of common stock, worth about $470 million, and its debt, estimated at around $230 million.
“We’re going to remain a corporation owned by a corporation, trading thousands and thousands of owners for one owner,” Reilly said.
Fortis is offering to pay a significantly higher rate than the current value of the CVPS stock on the market — $35.10 per share, as opposed to the going price per share of $24.32 at close of business Friday.
“You would have had a 44 percent profit if you’d bought your stock last Friday,” Reilly said. “That’s a very good deal for our shareholders.”
Reilly said CVPS and Fortis are at the beginning of the state and shareholder approval process. He expected it would take six to 12 months for a full regulatory review.
CVPS has a 52 percent stake in VELCO, the state’s transmission utility, which is owned by the state’s power companies. Reilly said the deal with Fortis won’t affect CVPS’ rights and responsibilities regarding VELCO.
