Natural gas remains one of the vital growth drivers for US power companies in the changed landscape for utilities. On April 23, 2018, Houston-based CenterPoint Energy (CNP) announced it would buy natural gas company Vectren (VVC) for $6.0 billion.
Vectren shareholders are expected to receive $72.0 in cash for each share held, implying a premium of about 10% from its close on April 22, 2018. CenterPoint Energy will also assume all of Vectren’s outstanding debt.
CenterPoint Energy stock lost almost 3% after the announcement, while Vectren stock zoomed more than 7% to a fresh 52-week high. There was a notable surge in Vectren’s volume as well. A total of 6.6 million shares of Vectren exchanged hands on April 23 compared to the stock’s three-month average volume of 0.7 million.
CenterPoint, at a current market cap of $11.5 billion, operates in Arkansas, Louisiana, Minnesota, Mississippi, and Oklahoma. Vectren has a market cap of $5.4 billion and has a presence in Indiana and Ohio. The combined entity is expected to serve more than 7 million customers across the country.
Energy efficiency initiatives have lowered the per customer energy consumption in the US in the last few years. Thus, many utilities (VPU) (XLU) have been expanding beyond their traditional scope of electric operations to segments like natural gas and midstream. Also, gas distribution and allied operations tend to offer higher growth compared to electric operations.
CenterPoint Energy stated that with the merger, it expects to maintain an annual EPS (earnings per share) growth target of 5% to 7% in 2019 and 2020, respectively, excluding any one-time charges related to the merger.