AES Sinks its Teeth into Midwest Power Market, Buys IPALCO
AES Corp. has set the table to take another big bite of the
Midwest power generation market after agreeing to buy IPALCO
Enterprises Inc. of Indiana for $3.04 billion in stock and assumed
debt. The Arlington, VA, power plant developer, which expects to
close the sale early in 2001, plans to build additional facilities
in IPALCO's Indiana territory and eventually begin selling
electricity in the growing Chicago marketplace.
AES plans to install fiber-optic lines along Indianapolis-based IPALCO's power-line
and natural-gas pipeline routes, with a long-range scheme to construct telecommunications
networks through its energy rights-of-way. The agreement will give the largest
U.S. power plant developer its second buy in the Midwest market after purchasing
Cilcorp. Inc. of Peoria, IL, last year for $1.3 billion (see NGI, June
21, 1999). The Cilcorp purchase gave AES about 190,000 electric and 200,000
gas customers in central Illinois.
AES's offer of $25 a share in stock is 16% more than IPALCO's
close was on Friday (July 14), and the agreement also includes an
offer to take on $890 million in debt following regulatory
approval. The transaction is expected to be tax-free to IPALCO
shareholders, accounted for as a pooling-of-interests, and also
will be accretive to AES earnings. After regulatory and shareholder
approval, IPALCO would become a wholly owned subsidiary of AES. Its
headquarters would remain in Indianapolis.
AES CEO Dennis W. Bakke said the company was "thrilled" to be in
the Indiana market, and said AES would build on a "solid foundation
of customer service and community involvement" that IPALCO had
built over the years.
IPALCO owns three power plants in Indiana, which produce about
3,000 MW of coal-fueled electricity. It owns Indianapolis Power
& Light Co., which has 433,000 customers in central Indiana,
and which had sales of $835 million in 1999.
Earlier this year, IPALCO considered going private, according to
President John Hodowal, because officials determined that based on
changes to state law, the Indiana company eventually would have to
compete with larger plants for customers. A few months ago when it
began discussions in this direction, Hodowal said AES approached
officials to talk about the buy.
Founded in 1981, global powerhouse AES already has more than 141
power projects in 20 countries, totaling more than 48,000 MW, and
has made its biggest mark on the international scene. It also
distributes electricity in 10 countries through 21 distribution
businesses. However, in recent years it has turned more attention
to the U.S. market.
In May, AES won a bid to purchase a 70% interest in the 1,580 MW Mohave Generating
Station in Laughlin, NV, for nearly $667 million (see NGI, May
15). It purchased New Energy Ventures LLC in 1999 for about $90 million
to expand into direct power sales to businesses. Its clients include New York
City's Rockefeller Center and Bloomingdale's department stores. The company
has grown by developing new electric generating facilities and acquiring generating
facilities and electric distribution businesses.
The power hungry Midwest has seen other companies snatching up smaller ones
in hopes of generating more customers and power. Edison International of Rosemead,
CA, bought 16 power plants from Chicago's Unicom Corp. last year for $4.8
billion (see NGI, May 31, 1999). Also in 1999,
Houston-based Dynegy bought Illinova Corp. for $4 billion, and plans to spend
another $2 billion on more plants in the next two years (see NGI, June
Carolyn Davis, Houston