AES Corp. has set the table to take another big bite of theMidwest power generation market after agreeing yesterday to buyIPALCO Enterprises Inc. of Indiana for $3.04 billion in stock andassumed debt. The Arlington, VA, power plant developer, whichexpects to close the sale early in 2001, plans to build additionalfacilities in IPALCO’s Indiana territory and eventually beginselling electricity in the growing Chicago marketplace.

AES plans to install fiber-optic lines along Indianapolis-basedIPALCO’s power-line and natural-gas pipeline routes, with a long-rangescheme to construct telecommunications networks through its energyrights-of-way. The agreement will give the largest U.S. power plantdeveloper its second buy in the Midwest market after purchasingCilcorp. Inc. of Peoria, IL, last year for $1.3 billion (see DailyGPI, June 17). The Cilcorp purchase gaveAES about 190,000 electric and 200,000 gas customers in centralIllinois.

AES’s offer of $25 a share in stock is 16% more than IPALCO’sclose on Friday (July 14), and the agreement also includes an offerto take on $890 million in debt following regulatory approval. Thetransaction is expected to be tax-free to IPALCO shareholders,accounted for as a pooling-of-interests, and also will be accretiveto AES earnings. After regulatory and shareholder approval, IPALCOwould become a wholly owned subsidiary of AES. Its headquarterswould remain in Indianapolis.

AES CEO Dennis W. Bakke said the company was “thrilled” to be inthe Indiana market, and said AES would build on a “solid foundationof customer service and community involvement” that IPALCO hadbuilt over the years.

IPALCO owns three power plants in Indiana, which produce about3,000 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 toPresident John Hodowal, because officials determined that based onchanges to state law, the Indiana company eventually would have tocompete with larger plants for customers. A few months ago when itbegan discussions in this direction, Hodowal said AES approachedofficials to talk about the buy.

Founded in 1981, global powerhouse AES already has more than 141power projects in 20 countries, totaling more than 48,000 MW, andhas made its biggest mark on the international scene. It alsodistributes electricity in 10 countries through 21 distributionbusinesses. However, in recent years it has turned more attentionto the U.S. market.

In May, AES won a bid to purchase a 70% interest in the 1,580 MWMohave Generating Station in Laughlin, NV, for nearly $667 million(see Daily GPI, May 12). It purchasedNew Energy Ventures LLC in 1999 for about $90 million to expand intodirect power sales to businesses (see Daily GPI, June 17). Its clientsinclude New York City’s Rockefeller Center and Bloomingdale’sdepartment stores. The company has grown by developing new electricgenerating facilities and acquiring generating facilities and electricdistribution businesses.

The power hungry Midwest has seen other companies snatching upsmaller ones in hopes of generating more customers and power. EdisonInternational of Rosemead, CA, bought 16 power plants from Chicago’sUnicom Corp. last year for $4.8 billion (see Daily GPI, May 28, 1999). Also in 1999, Houston-basedDynegy bought Illinova Corp. for $4 billion, and plans to spendanother $2 billion on more plants in the next two years (see DailyGPI, June 15, 1999).

Word of the IPALCO acquisition got high marks from investors.Analyst Fitch said the announced agreement has “positive creditimplications for AES”, affirming its rating outlook as “stable.”IPALCO was given a senior secured debt rating of AA- by Fitch.

“The acquisition of IPALCO will significantly increase anddiversify total cash flow to AES,” said Fitch analysts. “Moreover,the stable cash flows from this highly rated U.S. entity help tomitigate some concerns about the company’s growth inlesser-developed countries. IPALCO’s generating assets are largelycoal-fired, baseload facilities that are environmentally compliantand extremely cost efficient to operate.” Fitch also said “there isthe potential for additional growth in generation-related projectsin the IPALCO geographic region.”

AES stock gained 5.71% yesterday, closing at $53.25. IPALCO’sstock increased 4.67% to close at $22.50.

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