How Will SCANA Gain From $14.6B Merger Deal With Dominion?

Electric utility SCANA Corporation SCG recently signed a merger deal with larger peer DominionEnergy, Inc. D.

About the Deal

Per the accord, each stock holder of SCANA will likely get 0.669 shares of Dominion. Considering the assumption of $6.7 billion debt of SCANA by Dominion, the transaction is worth roughly $14.6 billion. SCANA and Dominion expect the all-stock transaction to close this year, which awaits regulatory approvals.

Following the deal announcement, SCANA rallied more than 22% on the NYSE. This is because the receipt of 0.669 Dominion shares is equivalent to getting $55.35 per share, reflecting more than 42% premium to the closing price of SCANA on Jan 2.

How Will SCANA Benefit?

SCANA lost 45.7% in 2017, underperforming the industry’s 6.5% gain. The underperformance was led by SCANA’s decision to conclude construction works of units 2 and 3 of the VC Summer Nuclear Station.

SCANA was forced to discontinue the project after the builder of the plants, Westinghouse Electric Co, declared bankruptcy. SCANA also filed for withdrawing operating licenses of the units as series of delays and mounting costs had become a concern for the company.

However, the recent merger agreement has pleased the customers. This is because upon deal closure, Dominion is expected to make a payment of $1.3 billion to the customers of SCANA. Hence, on average, each client of SCANA will likely receive $1000.

On top of that, Dominion decided to lower customer bills by 5%. Moreover, Dominion has decided that they will not ask customers to pay $1.7 billion capital related to the failed nuclear project.

Dominion’s Advantage

Following the conclusion of the all-stock transaction, the merged entity will be able to provide services to roughly 6.5 million clients across eight states. Dominion expects the acquisition to boost its bottom line once the deal closes. Also, through 2020, Dominion projects compounded earnings growth of more than 8%.

Zacks Rank & Key Picks

SCANA carries a Zacks Rank #5 (Strong Sell), while Dominion carries a Zacks Rank #3 (Hold). A few better-ranked players in the energy sector are Lonestar Resources US Inc. LONE and Northern Oil and Gas Inc. NOG. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Fort Worth, TX, Lonestar is an upstream energy player. The company is expected to post year-over-year earnings growth of 81.3% in 2017.

Based in Minnetonka, MN, Northern Oil is an upstream energy player. The company’s 2017 revenues are estimated to grow almost 48%.

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