PPL Corp. (PPL) simultaneously announced two offerings via common stock and equity-linked securities to fund the acquisition of E.ON U.S. LLC, which was announced in April 2010. In the offering, the company plans to sell about 90 million shares of its common stock and $1.0 billion worth of equity unit securities.
 
Also, PPL will grant the underwriters an option to purchase an additional 13.5 million shares of PPL common stock and an additional $150 million of equity units to cover over-allotments.  
 
Background
 
In April, PPL Corp. agreed to buy E.ON U.S. LLC, the parent company of Louisville Gas and Electric Company and Kentucky Utilities Company, for $7.625 billion. These two utilities serve roughly 1.2 million customers and generate about 7,600 megawatts of electricity.
 
The acquisition is expected to transform PPL into a more geographically-diverse utility holding company. Following the acquisition, the company estimates annual revenues of $10 billion, serving nearly 5 million electricity customers in the United States and the United Kingdom, and owning about 20,000 megawatts of U.S. electricity generating capacity.
 
PPL Corp. expects the transaction to be modestly dilutive in the first full year and accretive to earnings by 2013. The transaction is expected to close by year-end 2010, pending approvals from state regulators in Kentucky, Virginia and Tennessee and the Federal Energy Regulatory Commission.
 
We expect the acquisition to lower the company’s risk profile, improve revenues, diversify its earnings stream, and reduce commodity sensitivity.
 
Maintain Neutral
 
We like PPL Corp. for its attractive location and diverse generation fleet, as well as for  its robust regulated business, strong hedged position, improved credit and cash flow profile and projected dividend hikes. Additionally, we believe PPL’s fully hedged position for 2010 provides greater earnings and cash flow predictability. Furthermore, the proposed acquisition of E.ON assets adds to our positive view on the stock.
 
However, the timely approval for the company’s purchase of E.ON US utilities continues to be suspect, which could impact PPL’s share price. Consequently, we remain on the sidelines with a Zacks #3 Rank (Hold) and maintain our Neutral recommendation.
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