Connecticut Water Service, Inc. CTWS and SJW Group SJW announced an amendment in their merger agreement. This amendment includes a new go-shop provision that will allow Connecticut Water Service to explore offers of an alternative merger, acquisition or other strategic transaction. Per the amendment, Connecticut Water Service is permitted to review and negotiate any alternative proposals received from third parties until 11:59 p.m. Eastern time on Jul 14, 2018.
Original Offer and Change in Scenario
On Mar 15, 2018, Connecticut Water Service received an offer from SJW Group to merge with the latter. Per the proposal, each shareholder of Connecticut Water Service was offered 1.1375 shares of SJW Group common stock, the equivalent of $64.72 per share based on SJW Group’s closing price as of Apr 25, 2018.
However, the merger scenario changed when Connecticut Water Service received an acquisition offer from Eversource Energy ES, a company primarily focused on energy business. Eversource made a proposal of $63.50 per share to each shareholder of Connecticut Water Service. The bid to acquire Connecticut Water Service was unsuccessful.
Despite showing loyalty to the previous offer, the current amendment in the merger agreement will allow Connecticut Water to explore all viable options and decide on the proposal that will be the best for the company and its shareholders.
Another Opportunity for Eversource & Others?
The amendment in agreement provided a fresh opportunity to Eversource Energy. The company will have to make a fresh offer for acquiring Connecticut Water, which is needed to be better than that of SJW Group and return more value to the shareholders of the company.
Eversource has an advantage over others, as its existing water assets via acquisition of Aquarion Water Company is in close proximity to Connecticut Water’s service territory. The acquisition of Connecticut Water would have expanded the service territory in the Northeast and provided superior services to the customers.
Other third parties might join the race to acquire Connecticut Water Service. One potential candidate could be American Water Works Company AWK. The company has a strategy to expand its market share through acquisitions and already has operations in some states in the Northeast. The acquisition of Connecticut Water Service could further expand the operation of the company in the Northeast states.
What is Essential for the Water Utilities?
The water utility industry offers excellent growth opportunities and as a consequence, we are noticing a rising interest in this space, shown by companies that were earlier focused primarily on other businesses.
We have noticed mergers and acquisitions in this highly-fragmented water utility space. The aging water and wastewater infrastructure of the United States requires investment of billions of dollars for upgradation.
It is easier for large companies to make arrangement for funds to carry out these major overhauls. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.
Price Movement
In the past three months, Connecticut Water has returned 29.9% against its industry's decline of 1.1%.
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Zacks Rank
Currently, Connecticut Water Service has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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