Wisconsin Energy Makes Bid for WICOR
The groundwork for an even more concentrated U.S. energy
industry was laid Monday as Wisconsin Energy Corp., a Milwaukee,
WI-based electric and gas utility, announced plans to acquire
neighboring gas distributor WICOR Inc. for about $1.51 billion in
cash, stock and debt, creating a major Midwest energy concern and
the 13th largest utility in the nation.
The definitive merger agreement, which was approved by the
boards of directors over the weekend, would establish a company
with a combined market capitalization of about $7.3 billion,
including $4.5 billion in equity and $2.8 billion in debt and
preferred stock. The deal would be accounted for as a purchase and
is expected to be accretive to earnings during 2001.
The transaction would shore up the gas distribution business of
Wisconsin Energy by merging the gas operations of its combined
utility, Wisconsin Electric, with WICOR's gas distribution company,
Wisconsin Gas. The deal would not involve the combination of any
electric assets. The merged company would have about 921,000
natural gas customers in Wisconsin and more than one million
electric customers in Wisconsin and Michigan's Upper Peninsula.
By adding WICOR's gas customer base to its own, Wisconsin Energy
will have "the size, scope and skills needed to compete in the
emerging regional energy market and a solid platform for continued
growth," said Richard A. Abdoo, who will continue as chairman,
president and CEO of Wisconsin Energy.
Also the acquisition would provide Wisconsin Energy with an
avenue for growth in the non-utility sector through WICOR's pump
businesses, which accounted for almost half of the company's $45
million in earnings last year and $944 million in revenues.
Analysts have projected an annual growth rate for WICOR's pump
operations of more than 15%.
The proposed acquisition elicited kudos from financial analysts.
"I think it was a brilliant move myself. Wisconsin Energy [and
WICOR] both serve in the same state. It makes a tremendous amount
of sense as far as savings go. The ratepayer will certainly save.
The shareholder will do well also," said Edward Tirello, utility
analyst for Deutsche Banc Alex. Brown. "Wisconsin Energy needs to
expand their non-utility base. And WICOR has that great pump
business," which has "already got an established base; they know
exactly what they're doing, and they can just build right off
WICOR subsidiaries manufacture pumps for a variety of
applications, including swimming pools, spas, wells and sump pumps.
Its Sta-Rite Industries and SHURflo Pump Manufacturing divisions
sell the majority of their products through Sears and Home Depot
stores. This is a "darn good business," said Donato Eassey, first
vice president at Merrill Lynch. The products are "well known
names." The acquisition of WICOR's pump manufacturing divisions
"certainly gives them [Wisconsin Energy] a much larger growth
platform on a relatively accretive basis," he noted.
The news of the Wisconsin Energy-WICOR transaction rekindled
memories of Wisconsin Energy's failed attempt to acquire
Minneapolis, MN-based Northern States Power Co. three years ago.
The $6 billion merger deal collapsed in 1997 after running into
problems with Wisconsin regulators. But Wisconsin Energy and
analysts don't expect to see a repeat of that this time around.
Wisconsin Energy has had preliminary discussions with the
Wisconsin Public Service Commission, and it has reacted more
favorably to this transaction, said company spokesman Michael John.
Wisconsin Energy contends the merger would result in lower rates
for the state's gas customers, but it couldn't quantify the
proposed savings or indicate when they might occur.
"I think this is a much simpler acquisition [than Northern
States]. It doesn't have the market-power issues on the electric
side. It's just a combination really of the gas distribution
systems, which are regulated and will remain regulated businesses.
So I think that this should be fairly straightforward, and I think
the regulators should be able to approve it with a fair amount of
dispatch," said Doug Fischer, senior electric utility analyst for
AG Edwards in St. Louis, MO.
He doesn't even believe the deal will require FERC's blessing.
The "expectation is that FERC approval may not be required as long
as WICOR surrenders their electric marketing license, which they've
Since its failed bid for Northern States, Wisconsin Energy has
not been sitting idle. Rather, it has been snatching up energy
assets in smaller merger transactions. It bought Edison Sault
Electric Co., a small Michigan utility, for $71 million two years
ago, and it has acquired a number of power plants in the
Wisconsin Energy's bid for WICOR did not take analysts by
surprise. "Our gas utility analysts have said, and we agree, that
almost any gas distribution company is a potential target either
through a combination with another gas company, or---as has been
happening more frequently recently---with.....an electric utility,"
AG Edwards' Fischer noted. Deutsche Banc's Tirello said his company
predicts there will be no free-standing gas distributors three
years from now-they will have all been gobbled up by electric
Under the terms of the merger agreement, WICOR shareholders will
receive a fixed price of $31.50 for each share of stock that they
own, a 10% premium over the closing price of $28.13 for WICOR stock
on Monday. Wisconsin Energy said at least 40% of the purchase price
will be paid in stock, but the ratio could be raised to 60%, or it
could elect to pay all cash. Wisconsin Energy stock closed Friday
at 27 1/16.
Wisconsin Energy and WICOR expect the transaction to receive all
the necessary regulatory approvals and be completed by the spring
of 2000. Within the first full year of operation, they project the
new company will show savings of about $35 million. No layoffs are
anticipated as a result of the deal, said Wisconsin Energy's John.
Under the agreement, George E. Wardeberg, chairman and CEO of
WICOR, will become vice chairman of the board of Wisconsin Energy,
reporting to Abdoo. He will continue in that position until he
retires in two years.