2:29 p.m. | Updated
The energy producer AES said on Wednesday that it had agreed to acquire DPL, the parent company of the utility Dayton Power & Light, for $3.5 billion in cash.
United States power companies have been seeking to consolidate in recent years to cut costs and achieve efficiencies of scale. In January, Duke Energy agreed to buy Progress Energy for $13.7 billion in stock.
Compared with a very busy 2010, however, the dollar volume of energy and power deals in the United States is down 21 percent for far this year, at $49 billion, from the same period a year ago, according to Thomson Reuters data.
Under the deal announced on Wednesday, AES will offer $30 a share — a premium of 8.7 percent over DPL’s closing stock price on Tuesday. It will also assume $1.2 billion in DPL’s debt.
“We are concentrating our growth efforts in a few key markets, including the U.S. utility sector, where we see opportunities to leverage our global platform of 40,500 megawatts and 11.5 million utility customers,” Paul Hanrahan, chief executive of AES, said in a statement.
Mr. Hanrahan added that the combined company would benefit from “the regional scale provided by our nearby utility business at Indianapolis Power & Light Company.”
DPL has a generating capacity of 3,800 megawatts, most of that from coal-burning plants. The company, which serves more than half a million customers, will remain an independent business with headquarters in Dayton.
“DPL is one of the few utilities that generates free cash flow,” Gregg Orrill, an analyst with Barclays Capital, wrote in a research note Wednesday.
Shares of DPL rose more than 9 percent, to $30.11 in late afternoon trading, while AES shares gained 3.4 percent, at $12.9.
AES, based in Arlington, Va., has energy operations in 28 countries with networks serving more than 12 million people. More than 80 percent of its revenue is outside the United States, with a huge business in the fast-growing economy of Brazil.
As a result, Citigroup analysts expressed disappointment with the deal, saying that the United States would now account for roughly 40 percent of AES’s earnings. “This incrementally dilutes the very reason for which most investors own AES in our view,” they wrote, noting that AES has been viewed as the “international power growth” name among investors.
The deal is expected to close in six to nine months, pending approval from DPL shareholders, and federal and Ohio regulators.
AES has accrued net operating losses of $1.6 billion that it can use in its acquisition. “We don’t expect to have any incremental cash taxes as a result of the acquisition, in that the N.O.L. will absorb the full cash liability that is currently paid to the I.R.S.,” Ned Hall, AES’s president for North America, said on a conference call with analysts.
The deal will also be supported with $3.3 billion in bridge financing from Bank of America Merrill Lynch, the financial adviser for AES on the deal, and subsequently by a debt issue. The law firm of Skadden, Arps, Slate, Meagher & Flom also advised AES.
UBS and the law firm of Cadwalader, Wickersham & Taft advised DPL.
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