AES Corp. will buy the regional power company DPL Inc. for about $3.5 billion in cash, the companies said Wednesday, accelerating a consolidation in the industry that is already well under way.
With costs rising and environmental regulations on the horizon, utilities are bulking up so that they can better shoulder the load. The recession also hit the sector hard because major customers like industrial plants and factories have shut down.
The global power company said that it will pay $30 per share for DPL of Ohio, which is an 8.7 percent premium to its closing stock price of $27.59 Tuesday.
“We are concentrating our growth efforts in a few key markets, including the U.S. utility sector, where we see ways to leverage our global platform of 40,500 megawatts and 11.5 million utility customers,” AES President and CEO Paul Hanrahan said.
AES operates on five continents and last year it bought the Ballylumford Power Station in the United Kingdom.
The Virginia company joins Duke Energy Corp. and others in a race to grow bigger through acquisitions.
Duke earlier this year announced that it would buy out its rival in North Carolina, Progress Energy Inc., for $13.7 billion in an all-stock deal, creating a gaint in both market value and power capacity.
In November, PPL Corp. bought Louisville Gas and Electric and Kentucky Utilities from Germany’s E.On. Also last year, First Energy Corp. agreed to acquire Allegheny Energy Inc. while Northeast Utilities agreed to buy NStar.
The challenges facing utilities are immense.
Just this week, the Supreme Court heard arguments over whether six states, New York City and several conservation groups could sue electric utilities, the five largest emitters of carbon dioxide in the United States, in an effort to cut greenhouse gas emissions from power plants.
The defendants in that case are American Electric Power Co. of Ohio, Southern Co. Inc. of Georgia, and Xcel Energy Inc. of Minnesota, and Cinergy Co., which is now part of Duke Energy.
The federal Tennessee Valley Authority is also a defendant.
While the justices appeared skeptical about the case, power companies are already spending millions to reduce emissions and will likely be better able to handle the costs by ramping up the scale on which they operate.
Under terms of the DPL transaction, subsidiary Dayton Power and Light Co. will keep its name and stay headquartered in Dayton, Ohio for at least two years after the acquisition. AES is based in Arlington, Va.
DPL’s annual shareholders meeting, set for April 27, has been postponed.
The boards of both companies have unanimously approved the deal, which is expected to close within nine months. DPL shareholders must still approve the buyout. There are regulatory hurdles from the the Federal Energy Regulatory Commission and the Public Utilities Commission of Ohio
AES shares rose more than 2 percent, to $12.75, before the market opened. Shares of DPL soared 8 percent to $29.92.