Leading market players adopt various strategies such as partnership, mergers, collaborations to either gain a strong position in the industry or set aside competition and dominate together. The need of an hour in the energy sector of the U.S. is to set aside competition and do what is good for business. Consumers, business organizations, and local governments have become energy efficient and implemented various conservation techniques to reduce consumption of energy. This has rolled down the consumption, and consequently, prices of electricity. The government is also supporting policies and providing incentives for research activities that focus on reducing consumption of energy. As a result, two leading players in the energy sector have decided to merge to cut costs and streamline processes.
The U.S. gas and electric utility CenterPoint Energy plans to merge with rival Vectren Corp. in a $6 billion deal. The merger deal includes the purchase of Vectren shares for $72 apiece. This deal will enable CenterPoint to expand its operations in Ohio and Indiana along with adding nearly 1.45 million customers. The Houston power utility already serves in six states including Arkansas, Minnesota, Louisiana, Oklahoma, Mississippi, and Texas.
“We’re going to be a bigger, stronger company as a result of coming together,” said Scott Prochazka, CEO of CenterPoint, in an interview. “We’re both strong companies with good growth profiles and elements where we complement each other.”
Once the merger goes through, CenterPoint would have nearly 7 million customers. It will also increase the value of assets to $29 billion as both companies will operate utilities across eight states and other natural gas delivery businesses across 40 states. The merger will also be influential in the compressed natural gas (CNG) market in coming years with growing adoption of CNG in the automobile sector. According to the report by Progressive Markets, the global CNG market would grow at the CAGR of 12.5% from 2017 to 2025.
CenterPoint outlined that it plans to grow earning per share 5–7 percent in 2019 and 2020 following the merger deal. The deal is estimated to close in the first quarter of 2019. The Houston firm is a Fortune 500 company with nearly 8,000 employees. It will fund the deal by selling stocks worth of $2.5 billion and availing debt of $3.5 billion. Moreover, the company will assume Vectren’s $1.8 billion in debt.
Prochazka will lead the combined company. He said the entry in Ohio and Indiana markets will not have any impact on ratepayers elsewhere. He also highlighted that there will not be huge job layoffs once the deal goes through, but there could be some layoffs. It will be interesting to see what the fate has in store for the combined company.