The AES Corporation (AES) entered into a definitive merger agreement with DPL Inc. (DPL). Per the agreement AES will acquire DPL in a transaction valued at $ 4.7 billion for the enterprise. AES will acquire all of the outstanding shares of DPL for approximately $ 3.5 billion in cash, or $ 30 per share, representing an 8.7% premium over DPL’s closing share price on April 19, 2011.
This represents a premium of 10.7% over the 30 day average of DPL’s closing price. Upon closing of the transaction, DPL will become a wholly owned subsidiary of AES.
DPL Inc. is a regional energy company. DPL, through its subsidiaries, owns and operates approximately 3,800 megawatts of generation capacity, of which 2,800 megawatts are low cost coal-fired units and 1,000 megawatts are natural gas and diesel peaking units.
The transaction has already received the approval of the boards of DPL and AES. Going forward, AES expects to complete the merger over the next six to nine months. However the transaction is subject to receipt of certain regulatory approvals, including those from the Federal Energy Regulatory Commission (FERC), the Public Utilities Commission of Ohio (PUCO), and the antitrust review under the Hart-Scott-Rodino Act.
Upon completion of the transaction, DPL’s common stock will cease to be publicly traded, and each outstanding share of DPL’s common stock will be converted into the right to receive a cash amount of $ 30 per share, without interest. AES estimates post-acquisition its adjusted earnings per share for fiscal year 2011 to be in the range of $ 0.97–$ 1.03.
Arlington, Virginia-based AES Corporation is a global power company and is involved in the generation, distribution, transmission and selling of electricity to end-customers in the residential, commercial, industrial and governmental sectors. AES Corporation’s businesses encompass 28 countries across 5 continents representing a highly-diversified earnings base.
Geographic diversity has resulted in a portfolio that is well-positioned for capitalizing on regional differences in power prices and weather-driven demand and also insulates the company from specific risks in any single region or country.
AES Corporation has a strong balance sheet compared to its peers with a low long-term debt-to-capitalization of 61.7% at the end of fiscal 2010. The company continues to be a strong cash generator, having generated operating cash flows of approximately $ 3.5 billion in 2010 and ending 2010 with a cash horde of $ 2.6 billion.
We expect AES Corporation’s strong liquidity to stand in good stead for any earnings accretive acquisitions, investments for organic growth, as well as its ongoing $ 500 million share buyback program announced in July 2010. As of February 25, 2011, $ 388 million of the $ 500 million authorized remained available under the stock repurchase program.
AES Corporation’s power generation portfolio is skewed toward coal and gas, thereby increasing the burden of green investments. The company is also rapidly increasing its generation capacity and significantly focusing on fossil fuel plants.However, with the steady improvement of the global economy, demand for coal, specifically from China and India, is raising the price, attracting supplies from across the world. This invariably puts an additional burden of hedging on the company’s ability to smoothly run its coal based generation assets. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
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