CenterPoint’s purchase of Vectren signals a new era in the utility sector

In one of the largest deals in the utility industry, CenterPoint Energy (CNP) has agreed to acquire rival Vectren Corp (VVC) for around $6 billion. Serving over seven million households, the combined entity will operate in eight states and will be headquartered in Huston.

Pursuant to the takeover, which creates the biggest electricity and gas distributor in the country, Houston-headquartered CenterPoint will add the states of Indiana and Ohio to its fold. It is to be noted that the deal comes at a time when consumption has reached saturation levels in several states.

The transaction is tentatively scheduled to close in the first quarter of the next fiscal year. It will be funded by equity and debt and is expected to be accretive to earnings in 2019 and 2020.  As per the agreement, CenterPoint will assume all of the outstanding debt of Vectren.

The buyout assumes significance considering the fact that the utility sector is on the threshold of a transformation that would bring a sea change to operations. Stockholders and customers can expect to benefit from the unique synergies the combined company creates.

Though customers might not see any rate benefit immediately after the iconic takeover, in the long run, prices are likely to change in their favor. Meanwhile, it has to be seen how the integration affects Vectren’s workforce.  CenterPoint is likely to retain Vectren’s field employees and all the key operational activities. It is learned that the merger agreement contains terms that mandate the new company to spend a significant amount on social service.

The combined entity will operate in eight states and will be headquartered in Huston

Several new players have entered America’s distributed-energy sphere in recent years — mostly encouraged by the start-up friendly atmosphere — and many non-energy enterprises have ventured into the field as part of diversification. The trend has sent the right conditions for M&A activity in the sector, where traditional players are making every effort to stay up-to-date.

Meanwhile, the Fed’s new monetary stance and rising interest rates are proving to be a damper for some potential deals, after a busy 2017 that witnessed some hectic M&A activity in the sector. However, the need to retain market value in the changed scenario and to expand the scale of operation continues to drive companies pursuing consolidation to go ahead with their plans.

CenterPoint stock, which maintained a downtrend throughout last week, witnessed a sharp fall in early trading Monday. Conversely, Vectren investors reacted positively to the merger news, sending the shares up more than 6% in the initial hours.