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DAYTON — The Miami Valley’s residential and business electricity consumers won’t feel any immediate impact from Wednesday’s announcement that Dayton Power and Light Co.’s corporate parent is to be sold to a global energy company with operations on five continents.
DP&L’s electricity rates are locked in through 2012 under a plan approved by the Public Utilities Commission of Ohio, and that won’t change after a sale of parent DPL Inc. to AES Corp. of Arlington, Va., officials of both companies said.
But DPL is committed to filing a request for a post-2012 rate plan with the PUCO in March.
News of AES’s $4.7 billion takeover of DPL caused a huge reaction on Wall Street, as DPL stock was one of the most actively traded on the New York Stock Exchange.
About 59 million shares of DPL stock were traded Wednesday, compared with the typical daily volume of 723,500 shares.
The stock closed at $30.17, slightly higher than the $30 per share that AES of Arlington, Va., has offered to pay to buy all of DPL's nearly 116 million shares.
AES announced plans Wednesday for a deal that involves buying DPL for $3.5 billion and assuming $1.2 billion in DPL debt. AES plans to pay for the deal through new debt and cash on hand. The deal is expected to close in six to nine months if it’s approved by DPL shareholders in mid-July.
As part of the agreement with DPL’s directors, AES will maintain DPL’s current level of philanthropy in the community for at least two years and have no work force reductions through 2013.
Leaders of both companies said the acquisition by the much larger AES can help DPL maintain competitive rates while complying with tougher environmental regulations and requirements that energy companies diversify their energy sources to add renewables. AES owns the similar-sized utility Indianapolis Power & Light Co., or IPL. (AES and DPL by the numbers)
But consumer advocates said the deal, which is structured as a merger, needs close regulatory attention to make sure it doesn’t harm ratepayers.
Longtime consumer advocate David Rinebolt, who has followed both companies, said the acquisition makes sense for AES.
“It (DPL) is a digestible company,” he said. “It’s not too big and it’s strategically located near (IPL). It provides AES with additional low-cost generation, and DPL has a good return on investment.”
DPL an 'attractive’ target
AES North America President Ned Hall said DPL, which has been rumored as a takeover target for a decade, was “very attractive” in part because it has already made environmental upgrades to 80 percent of its coal-fired generation plants.
“They’ve already spent all the capital to compete in the market,” Hall said.
He said AES hopes to realize $5 million to $10 million a year in efficiencies with the merger because DPL will no longer have costs associated with being a publicly traded company, and because AES’s size and purchasing power can cut operating, maintenance and capital costs.
In a conference call with analysts, Hall said AES hopes eventually to realize $30 million to $40 million in efficiencies through “shared services across platforms.”
The company doesn’t plan layoffs in Dayton, Hall said in an interview with the Dayton Daily News, but it could make organizational changes that would locate specific functions in various cities. He said AES’s global reach could help it attract talent to DP&L.
The deal requires approvals by the Federal Energy Regulatory Commission, federal antitrust regulators and the PUCO.
“A deal like this needs very careful regulatory scrutiny, both on the state and federal levels, to make sure the utility’s customers aren’t put at a disadvantage,” said longtime local consumer advocate Ellis Jacobs. He said the additional debt required for the acquisition could adversely impact rates and reliability. Those concerns are shared by Ohio’s consumer counsel, who serves as an advocate for ratepayers before the PUCO.
The PUCO will examine the merger proposal to ensure that it would provide adequate service and reasonable rates for DP&L customers, PUCO spokesman Matt Butler said.
Customers rate Indiana utility high
Hall said AES’s management of IPL should allay any concerns of Dayton consumers. IPL remains a standalone company with local management and it retained the IPL name after its 2001 acquisition by AES. It has the lowest rates of Indiana’s five major investor-owned utilities, and it scored high in customer satisfaction in a national survey of 121 utilities by J.D. Power & Associates.
Anthony Swinger of the Indiana Office of Utility Consumer Counselor said “we receive far fewer complaints about IPL” than other utilities. After IPL agreed to make reliability upgrades about 10 years ago, “what we have seen is a dramatic improvement,” he said.
Kerwin Olson, program director for the Indiana Citizen Action Coalition, agreed IPL generates few complaints. But “IPL has not been in for a full-blown rate case (before Indiana’s public utilities commission) for almost two decades and that’s of concern to us,” he said. “Their books have not been open to public scrutiny for a very long time. We’d like to see IPL true up their books, true up their numbers and let the public have a look at their business.”
An investment analyst with Morningstar Inc. sounded a warning about the deal Wednesday.
AES has been on a buying spree and, though it has “ample liquidity” with $4.5 billion of cash and short-term investments in hand, the company “is still overleveraged and we would like to see management make debt reduction a higher priority,” wrote the analyst, Patrick Goff, who follows AES.
Goff also wrote: “Given our view of DPL’s fair value, we believe AES is overpaying for DPL by approximately 15 percent, but we recognize the need to provide shareholders a premium to the market price.”
DPL said it will postpone its April 27 annual meeting until mid-July when shareholders are to vote on whether to approve the merger.
Law firms in Dallas said Wednesday they are investigating whether DPL’s board of directors reached a fair deal on price and terms with AES, in the interest of DPL shareholders. The firms, Briscoe Law Firm LLP and Goldfarb Branham LLP, invited any concerned DPL shareholders to contact them.
“I think it’s a fair price,” said Glenn Harder, chairman of DPL’s board of directors, noting that the board unanimously approved the transaction. “We wouldn’t have approved it if we didn’t think it was a fair price.”
Added Hall: “We’ve done this professionally and we expect this to go forward.”
He said if DPL shareholders approve the deal, they will continue to collect dividends until five to 15 days after the final regulatory approval, when they’ll “be offered cash to reinvest in another company.”
Don Moberly of Miamisburg, a retired DP&L employee who owns 11,000 shares of DPL stock, said the AES proposal to buy DPL’s stock and send checks to current shareholders could cause him to lose a chunk of his investment to taxes.
“From my perspective, we’re getting a raw deal,” Moberly said. “The tax man’s going to eat me alive. There’s not going to be enough money left that I can find a place to invest it and earn what I’m earning now. I’m going to take a beating.”
Contact this reporter at (937) 225-2242 or jnolan@DaytonDailyNews.com.
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