Everything Investors Need to Know About the Avista/Hydro One Deal

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Last month, electric and natural gas utility Avista Corporation (NYSE: AVA) announced that it will be acquired by Canadian utility Hydro One (TSX: H) for $5.3 billion to create one of North America's largest utilities. Here's what the new company will look like and how owners of shares will be affected.

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No major shakeup here

Spokane, Washington-based Avista has been providing power to the inland Northwest for a long time. The company was founded as Washington Water Power in 1889 when utilities were still young, and is one of the smaller publicly traded utility companies remaining in the U.S.

As Avista is a major employer and the primary power provider in the greater Spokane area, there is concern from both customers and employees of the company that the change in ownership could disrupt their lives as well. Avista and Hydro One were quick to put any fears to rest. Both said that customer rates on both sides of the border would not be affected by the deal. Avista will continue to operate as an independent business under Hydro One and said no changes to its workforce were in order.

With changes being kept to a minimum, why the deal in the first place? Hydro One -- Ontario, Canada's leading utility provider -- was looking for an entry into the U.S. market. The combined companies should also be able to capture some cost savings and faster rollout of infrastructure updates. The combination will create one of the 20 largest North American utilities, with combined assets of $25.4 billion U.S.

Shareholders sent packing

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While customers and employees are supposedly safe from disruption, it's a slightly different story for owners of Avista stock. First, the good news: Each share of Avista will be worth $53 in cash, a 24% premium to the price the day before the announcement was made. That gives investors an all-time-high price and reverses what was shaping up to be a lackluster year of stock performance for the company.

The bad news is that Avista owners will no longer get a piece of the pie, stockwise. Hydro One will be cashing out shareholders when the deal is finished. If you want back in, you'll have to buy Hydro One stock, but you'll have to ask your broker if they have access to the Toronto Stock Exchange, where shares are traded.

Losing out on ownership might be particularly aggravating since one of the most compelling reasons for owning any utility is the dividend. Avista has been steadily doling out pay raises for years, and until the merger announcement and share price spike, the yield was well over 3%.

(For those in need of dividend income and who want to own utilities, take a look at some utility ETFs for starters.)

A lot could unfold on this story before the deal closes, expected to happen about a year from now. Shareholders will continue to collect their dividend, though the share price will likely hover just below $53. In the meantime, shareholders, hold tight for updates.

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Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.