UNS Energy to be Acquired by Fortis Unit - Analyst Blog

UNS Energy Corporation's UNS shareholders have voted in favor of the proposed acquisition of the company by the subsidiary of a Canadian firm, Fortis Inc. The board of directors of UNS Energy has already given their approval for the transaction. The completion of the deal is subject to the approval of the Arizona Corporation Commission and other government bodies. Once the regulatory hurdles are over, the transaction is expected to be completed by 2014.

Per the agreement, Fortis Inc. will purchase all outstanding common stock of UNS Energy for $60.25 per share in cash. If approved, UNS Energy's headquarter will remain in Tucson, AZ and will act as a standalone entity under Fortis Inc.'s portfolio. The management and staff levels will remain unchanged.

In Dec 2013, UNS Energy has inked an agreement and planned to merge with Fortis Inc. The value of the proposed transaction will be $4.3 billion.

St. John's, Newfoundland, Canada-based Fortis Inc. is an investor-owned gas and electricity distribution company. The firm owns electric utilities in five Canadian provinces and two Caribbean countries, a natural gas company in British Columbia, Canada, and a gas and electric utility in New York. The company serves over 2.4 million customers through its regulated utilities.

Post transaction, Fortis Inc. will invest $200 million of equity in UNS Energy. Fortis Inc. will also provide extra capital and new resources to Tucson Electric Power (“TEP”) and UniSource Energy Services (“UES”), subsidiaries of UNS Energy, for their projects. We believe deployment of additional funds will enable UNS Energy to finance its ongoing infrastructure construction and diversification ventures, primarily planned acquisition of Unit 3 at the natural gas-fired Gila River Power Plant and additional interest in Springerville Unit 1.

Fortis Inc. will also support UNS Energy's renewable energy-focused ventures while providing assistance to expand its fossil fuel-fired asset base. We remind investors that TEP and UES are currently expanding their renewable power generation properties. Both the entities are taking initiatives to meet Arizona's Renewable Energy Standard.

We believe that the transaction will create a win-win situation for both the organizations. Fortis Inc. will expand its scale of operation and market coverage out of the proposed transaction. We believe proper integration will help Fortis Inc. to enjoy both operational as well as financial synergy.

We consider the proposed agreement as a positive step for UNS Energy's future growth trajectory. The transaction will help the company to provide higher fund base for its future growth projects.

UNS Energy currently has a Zacks Rank #3 (Hold). Other better-ranked stocks in this industry include Public Service Enterprise Group Inc. PEG, American Electric Power Co., Inc. AEP and Avista Corporation AVA. While Public Service Enterprise holds a Zacks Rank #1 (Strong Buy), American Electric Power and Avista Corporation carry a Zacks Rank #2 (Buy).