After 115 years, TECO is selling its company to Emera Energy for $10.4 billion dollars (U.S. Dollars). Emera announced the sale on Friday and is expecting to close the deal by mid-2016. The Emera-TECO deal will require approval from several regulatory authorities, including the Federal Energy Regulatory Commission (FERC), New Mexico Public Regulation Commission, the Florida Public Service Commission and compliance with Hart-Scott-Rodino Antitrust Improvements Act of 1976. The deal also requires consent from TECO’s common shareholders.
As of now, Emera seems confident it will gain approval from each of these stakeholders, and we can expect them to successfully close the deal, given its impressive history of acquisitions. Finding approval of the common shareholders shouldn’t be a problem either considering the deal means that Emera is paying $27.55 per share, with a premium of over 30% on TECO’s closing price of $21.08, as of Friday.
What this means for Tampa…
TECO has an 115-year history with the city, maintaining its headquarters in the heart of Tampa’s thriving downtown. Hillsborough County leaders have expressed sadness about the sale, stating that TECO was very committed to the community. Emera’s CEO, Chris Huskilson, has indicated that the communities they serve are paramount to them. Emera’s executives are in town today to discuss the deal with TECO employees at their headquarters and are expected to provide similar reassurances – no company name change, no layoffs, and continued community support.
The Canadians have a pretty good track record for reliability and safety which Emera should maintain or improve in TECO’s operations. The company has also shown a commitment to renewable, clean energy which includes hydroelectric, wind and the desirable solar power Floridians have been seeking.
Will TECO face a lawsuit?
The New York-based law firm of Bronstein, Gewirtz and Grossman said late Friday it would investigate whether TECO’s directors “breached their fiduciary duties to stockholders by failing to shop the company” before agreeing to the sale adequately. This statement came shortly after TECO’s chief John Ramil mentioned through its agreement with Emera, TECO is not able to solicit any bids, though it is free to review other offers.
TECO confirmed it did field other purchasing offers. However, it declined to identify the parties. Given TECO’s diplomatic history of solicitation and finally committing to selling, it seems unlikely that anything will destroy the deal. In a regulated utility landscape with a healthy guaranteed rate of return, TECO and Emera would surely want to follow the rules and make as little noise as possible to finalize the sale without any hiccups.
Why Emera? Will electricity rates increase? What’s next for Florida?
Emera Energy is growing and has a rather impressive history of mergers and acquisitions, TECO will be their latest and largest to date. Emera has operated and purchased utility companies that operate in regulated areas with practically guaranteed profits. One of the fascinations of a regulated utility in Florida is the sizable guaranteed rate of return by Florida regulators, roughly 10.25% for TECO. The table below summarizes the company’s acquisition history for the last five years.
We were excited to for the sale because it was an opportunity for change and although the local landscape will change with the new company, it’s not the change we were hoping for Florida’s electricity regulations. Emera Energy has only operated in regulated areas and judging by its acquisition history, that’s not likely to change anytime soon. Emera Energy has an interest in maintaining the monopolized utility structure in Florida, and any hopes for open competition for electricity in Florida will continue to be battled by utility monopolies. Whereas if TECO would have sold to a company that has energy practice in deregulated areas of the U.S., they would be more open to a competitive energy landscape in Florida, allowing electricity consumers to choose their energy supplier.
The cost of electricity for TECO customers could increase. In the price of the TECO sale, nearly 1/3 of the price tag went to pay ambiguous debts. Also, with recent climate change policies and outlook on electricity generation requirements, TECO put their coal operations up for sale last year and are still for sale today. TECO will need to make a lot of changes from a regulatory standpoint and others they will want to make as the city’s needs grow as its population does. Those improvements will cost money. Of course, all changes to electricity rates would go through Florida’s Public Service Commission, although they’re rarely denied. It will not be clear if TECO customers will see any changes but we imagine they wouldn’t wait until after the sale is final and Emera has taken complete control.
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