PPL Corporation (PPL) entered a purchase agreement with E.ON AG to buy E.ON U.S. LLC, the parent company of Kentucky’s two major utilities, for $7.625 billion.
The two Kentucky utilities that PPL will acquire under the agreement are Louisville Gas & Electric Company and Kentucky Utilities Company. These utilities serve roughly 1.2 million customers and generate about 7,600 megawatts of electricity.
PPL Corporation intends to operate E.ON U.S. as its wholly owned subsidiary, retaining the headquarters in Louisville. Customers will continue to be served by Louisville Gas & Electric Company and Kentucky Utilities Company, with operational headquarters in Louisville and Lexington, respectively. Management does not expect to lay off Kentucky workers.
The purchase price of $7.625 billion includes tax benefits with a present value of about $450 million. Accounting for the tax benefits, the effective purchase price is $7.175 billion. The company plans to pay for the transaction with $6.7 billion of cash and through the assumption of $925 million of tax-exempt debt. Furthermore, the company plans to sell some non-core assets to pay for a part of the buyout.
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.
Management stated that the transaction is anticipated to be modestly dilutive in the first full year and accretive to earnings by 2013.
On May 6, 2010, the company is scheduled to announce its earnings for the first quarter of 2010. The company expects to report GAAP earnings of 66 cents per share in the quarter compared with 64 cents per share reported last year. Ongoing earnings are anticipated to be 94 cents per share for the first quarter of 2010 compared with 60 cents per share for the first quarter of 2009.
On the call, the company is likely to reaffirm its 2010 forecast of earnings from ongoing operations of $3.10 to $3.50 per share and reported earnings of $2.82 to $3.22 per share. These forecasts do not reflect any impact of this acquisition or the related financings.
The transaction is expected to close by year-end 2010. It requires approvals by state regulators in Kentucky, Virginia and Tennessee and by the Federal Energy Regulatory Commission.
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