Connecticut electric utility UIL (UIL) agreed to buy Philadelphia Gas Works, the nation’s largest municipally-owned natural gas utility, on Monday for $1.86 billion.
The assets, scooped up from the City of Philadelphia, significantly expand UIL’s natural gas business, giving it a more geographically diverse portfolio and more gas customers.
It is expected to be immediately accretive to cash flow and long-term accretive to earnings.
Philadelphia Gas Works operates a distribution system of roughly 6,000 miles of gas mains and service pipes supplying some 500,000 customers in Philadelphia. The acquisition enables UIL to service more than 1.2 million gas and electric customers, including 900,000 gas customers, with proximity to the gas supply in the Marcellus and Utica shales.
The utility says upon close it will have the flexibility to increase investments in infrastructure and expand its services. The transaction , unanimously approved by UIL’s board of directors, is on track to close by the first quarter of 2015, pending regulatory approvals,
“The addition of the residential and commercial customers in the country’s fifth-largest city will significantly enhance UIL’s scale and financial profile, with a more diversified cash flow and asset mix,” UIL chief executive James Torgerson said in a statement.
UIL secured a $1.9 billion loan, as well as financial advising, from Morgan Stanley (MS). It plans to maintain PGW’s Philadelphia headquarters and keep its six customer service centers around the city open.
The New Haven, Conn.-based utility reaffirmed its fiscal 2014 earnings guidance from Feb. 20 in the range of $2.15 to $2.35 a share, excluding one-time transaction costs. Analysts on average are calling for non-GAAP EPS of $2.28.