PPL Corp., which employs about 1,300 people in the Lehigh Valley, has held talks about merging with a Connecticut utility, according to media reports.
The deal is said to be worth an estimated $67 billion, including debt. Several financial news outlets, including the Financial Times, reported negotiations with Avangrid involve combining all or parts of their businesses.
If the two companies merged their entire operations, it would form one of the largest publicly traded utilities in the U.S., and the deal would rank as the biggest utility tie-up this year, according to the reports.
PPL wouldn’t comment on the possibility of takeovers or mergers. Spokesman Ryan Hill said Monday the company doesn’t address “market rumors.”
It’s too soon to know what a deal would mean to PPL customers or employees, or to buildings that bear the company’s name, such as it’s 23-story headquarters in Allentown or PPL Center.
“With no details, I think it is just too early to comment intelligently on it at this time,” said Paul Patterson, an analyst at Glenrock Associates LLC who follows PPL.
Tanya McCloskey, Pennsylvania’s acting consumer advocate, said if the companies reach a merger agreement, it would need to be reviewed by the state Public Utility Commission.
“At that point, we would become involved and take a look at the transaction and how it impacts ratepayers and the communities,” said McCloskey, whose office represents residential consumers.
She said the companies would need to show regulators a merger was “in the public interest.”
PPL had 2018 revenue of $7.8 billion; Avangrid’s revenue was $6.5 billion last year.
Based in Orange, Connecticut, Avangrid provides gas and electricity to 3 million customers in New York and New England, and owns a renewable energy business that operates in 24 states, including wind turbines in Texas.
PPL owns assets principally across Pennsylvania and Kentucky, as well as a company in the United Kingdom known as Western Power Distribution. Overall, the company sells electricity to more than 10 million customers.
Patterson said the utility industry has been consolidating for some time.
“I think many of these companies are potential candidates for combinations with others, if the conditions on the ground and terms of a deal can meet their objectives,” he said.
Patterson also believes PPL has been open to “value creation,” which could mean other things besides mergers and acquisitions.
“Therefore, I don’t find the reports of these apparent negotiations all that surprising,” he said.
During a quarterly earnings call in February 2018, CEO William H. Spence brushed off an analyst’s question about mergers and acquisitions.
“We can be successful with organic growth,” Spence said then. “We don’t need [mergers and acquisitions] to be successful.”
The Financial Times, which is based in London, attributed its story to “people familiar with the matter.” It said the companies are exploring various options to structure the transaction.
PPL’s U.K. business accounted for nearly 30% of its 2018 revenue. That large presence outside the U.S. has limited potential merger partners and complicates a deal, given political pressure in Great Britain that has included calls by some politicians to nationalize the power industry. PPL could consider spinning off its U.K. business if that proved a key hurdle.
Meanwhile, the merger could include an investment from Iberdrola, a Spanish utility that owns more than 80% of Avangrid.
The Financial Times also said there was no certainty a deal would be struck.
A potential merger involving a foreign investor for PPL could make sense, said investment adviser Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma, who follows PPL. It recently happened to Buckeye Partners, the giant pipeline company with a tank farm and other operations in Lehigh County, which is on the verge of being acquired by Australian company IFM Investors for $6.5 billion.
Foreign companies seek U.S. firms to diversify from “slowdowns” and “broken” financial systems in Europe and elsewhere, Dollarhide said. “It has to do with getting access to the U.S., the most lucrative market.”
In 1995, PPL fended off a proposed acquisition by the former Peco Energy, which later was acquired by Exelon Corp. Recently, shareholders have appeared to be happy with the company’s leadership.
Along with Air Products, PPL is one of two Fortune 500 companies based in the Lehigh Valley. Besides PPL’s local employee base, its PPL Electric Utilities subsidiary sells power to 1.4 million customers in 29 counties, including Lehigh and Northampton.
PPL stock closed Monday at $32.15, up 72 cents a share, while Avangrid closed at $49.54, down 33 cents. Both companies’ shares trade on the New York Stock Exchange.
Morning Call reporter Anthony Salamone can be reached at 610-820-6694 or asalamone@mcall.com.
ABOUT AVANGRID
What it is: An energy company based in Orange, Connecticut. Its Avangrid Networks subsidiary provides electricity and natural gas to 3.2 million customers in New York and New England. It also sells renewable energy (wind, solar and hydro power) throughout New England and other states — 24 in total.
2018 revenues: $6.5 billion
2018 profit: $595 million
Employees: nearly 6,500
Source: company literature at avangrid.com
