Spain's Iberdrola buys UIL Holdings for $3 billion

UIL Holdings Corp. wasted little time setting a new course after its bid to buy the Philadelphia Gas Works failed.

The Connecticut utility announced late Wednesday that it would be acquired by Spanish energy giant Iberdrola for $3 billion.

The merger will create a new U.S. publicly traded company to run UIL's and Iberdrola's utility operations, which have 3.1 million customers from New York state to Maine. The company will also manage Iberdrola's renewable power portfolio in 20 states.

UIL's current president, James P. Torgerson, will become the new company's chief executive officer. He told employees Thursday the acquisition will make UIL "a stronger utility."

The announcement resonated in Philadelphia, where UIL last year outbid four finalists to offer $1.86 billion for Philadelphia's city-owned gas utility. It withdrew the offer in December after City Council declined to hold public hearings on PGW's sale.

"I don't want to say I told you so, but I am," said Mark McDonald, Mayor Nutter's spokesman. "It's not surprising, considering UIL's growth strategy, that when the deal fell apart here, they quickly went in another direction."

Michael A. West Jr., UIL's spokesman, said the Iberdrola discussions began after the PGW sale collapsed. "You really couldn't try to leverage two things like that at the same time," he said.

He said the Iberdrola merger accomplished what UIL had hoped to achieve in Philadelphia - expand the company's footprint, and broaden its exposure to regulatory agencies in other states.

PGW sale opponents said the announcement only underscored their concerns that local control of the utility would have been lost in a privatization.

"In our view, this vindicates our testimony," said James F. Runckel, the lawyer for the gas workers' union. "With the frequency of mergers in the utility sector, any promises made here would probably not have been binding for very long."

UIL spent $23.1 million on the failed PGW acquisition, including $15.8 million on bridge financing, according to quarterly earnings report filed Wednesday. The costs reduced after-tax profits $13.9 million last year, or 24 cents a share - about 10 percent of net income.

UIL's sale is a reunification of sorts for Iberdrola, a Spanish energy company best known for its wind-turbine generation business.

Iberdrola USA Inc. sold three natural gas distribution companies in 2010 to UIL for $1.25 billion.

UIL, which is based in New Haven, Conn., owns United Illuminating, Southern Connecticut Gas, Connecticut Natural Gas, and Berkshire Gas.

Iberdrola USA owns New York State Electric & Gas, Rochester Gas & Electric, and Central Maine Power.

The combined entity, as yet unnamed, will have a rate base of $8.3 billion and expects to invest $6.9 billion in infrastructure and other capital expenditures over the next five years.

Iberdrola will own 81.5 percent of the new company. UIL shareholders will own 18.5 percent.

The proposed transaction implies a value of $52.75 per UIL share, including $10.50 per share paid in cash. The price represents a 24.6 percent premium to UIL's closing share price on Wednesday.

UIL's shares closed up 23 percent on Thursday at $52.07, and increase of $9.74.