Pennsylvania PUC approves sale of Peoples Gas to Aqua America Inc. in $4.3 billion deal
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The Pennsylvania Public Utility Commission on Thursday approved a settlement that would lead to the $4.3 billion acquisition of Pittsburgh-based Peoples Gas by a Philadelphia-area water and sewer company.
Aqua Chairman and CEO Christopher Franklin said the PUC’s action is the last regulatory approval necessary to close on a sale.
Aqua has said the sale would not raise gas rates for customers with Peoples. On Thursday, Franklin said the deal could lead to more jobs in Pittsburgh and the replacement of more pipes.
The transaction was previously approved by agencies in West Virginia and Kentucky.
Franklin said he hopes to close in “coming days.” Aqua America Inc., headquartered in Bryn Mawr, announced in October 2018 that it would purchase the gas company for $4.3 billion in an “all-cash transaction” and assume about $1.3 billion in Peoples’ debt.
“It’s good for shareholders because it adds to our earnings, and for customers, we’re going to bring more capital so we can do more pipe for the region,” Franklin said. “We’re going to keep all (Peoples’) employees, and we’re going to keep the headquarters in Pittsburgh.”
He added that Peoples has has plans to replace 3,100 miles of steel and cast iron gas pipe in coming years.
“We’re going to leverage each other’s strengths in this combined company largely around putting pipe in the ground,” Franklin said. “Between the two companies, we’re going to bring our expertise together to do that and actually increase the number of jobs in the Pittsburgh region and hopefully bring down the methane emissions and make the system more efficient.”
PUC commissioners approved the acquisition by a 4-1 vote. Commissioners made a few modifications and clarifications to a settlement outlining the acquisition. Peoples, Aqua America and other parties to the settlement will have to approve the changes made by the commissioners before the sale can move forward.
Commissioner Andrew G. Place voted no, saying he does not believe the transaction benefits the public.
He noted that PUC’s Bureau of Investigation and Enforcement and the Pennsylvania Office of Small Business Advocate opposed the deal and that the acquisition includes a $2 billion “acquisition premium” on top of a $2.275 billion sale price.
An acquisition premium is the difference between the estimated value of a company and the actual price paid to acquire it.
Place described the premium as the “most serious challenge to the future viability of the proposed transaction and financial stability of Aqua America.”
“I do not believe that this acquisition and the accompanying parameters of the non-unanimous settlement provide the substantive net affirmative benefits that are required by statutory law and applicable legal precedent,” Place said during the meeting.
Franklin said Aqua is paying a fair price for Peoples.
“We will come out of this transaction with a strong credit rating,” he said. “It will not put us into a situation where we’ve over-leveraged or taken on too much debt. We’re very comfortable with the financial outcome.”
He said another company might have moved the gas company headquarters and eliminated jobs.
“We’re not going to do that,” he said. “It was going to be sold. It was a matter of who was going to buy it. We think we were the best buyer.”
A Peoples spokesman declined comment.
Peoples is the largest natural gas provider in Pennsylvania. The company serves more than 740,000 customers in Pennsylvania, West Virginia and Kentucky. Peoples employs more than 1,500 people.
Aqua and its subsidiaries provide water and sewerage services to about 3 million customers, including about 430,000 in Pennsylvania.