Holy Moly — FirstEnergy to Buy Allegheny

Big news from the Wall Street Journal today — Ohio-based FirstEnergy is going to buy Allegheny Energy to become one of the biggest electricity conglomerates in the US.

FirstEnergy is the Ohio power company whose poor maintenance and poorly managed crisis response was blamed for starting the 2003 east coast blackout. Now they will own Allegheny Energy, one of the partners in the PATH line and sole owner of the TrAIL line.

FirstEnergy will also begin to rival AEP in its control of PJM Interconnection.

What will happen to the PATH project?

Here is the Wall Street Journal article by Kevin Kingsbury:

FirstEnergy Corp. agreed to a $4.7 billion takeover of Mid-Atlantic utility Allegheny Energy Inc., a deal which would create one of the largest electricity providers in the U.S.

The proposed combination comes amid a trying time for power producers, which have been dealing with a sustained drop in demand caused by the recession. Meanwhile, analysts have been waiting for when a potential new merger cycle in the sector would begin—several announced deals the past few years subsequently fell through.

First Energy’s takeover of Allegheny Energy could create one of the largest electricity providers in the U.S.

The all-stock deal would give Allegheny holders 0.667 share of FirstEnergy for each share they own, valuing the stock at $27.65 based on Wednesday’s closing price. That’s a 32% premium.

FirstEnergy President and Chief Executive Anthony J. Alexander said the deal offers “enhanced earnings growth potential and a more competitive cost structure.” FirstEnergy would be able to produce 70% more electricity while improving its overall environmental performance and boosting its customer base by 35% to about 6.1 million.

The combined company would have 10 utilities operating in in Pennsylvania, Ohio, Maryland, New Jersey, New York, Virginia and West Virginia.

FirstEnergy is based in Ohio, while Allegheny is headquartered in western Pennsylvania.

The deal is expected to close in about a year and would also include the assumption of some $3.8 billion of Allegheny debt. FirstEnergy expects the deal to boost its earnings in the first year after closing.

Here’s a link to FirstEnergy’s press release on the deal. The press release has a lot of details on both companies and the mechanics of the merger.

Ken Ward has a great post on the merger on Coal Tattoo. You can see maps of both companies’ service areas.