UIL Holdings Corp. (UIL) will buy Philadelphia Gas Works for $1.86 billion to expand its reach beyond New England, two years after the city put the nation’s largest municipally-owned natural gas utility up for sale.
The cash purchase is subject to approval by the Philadelphia City Council and state regulators, New Haven, Connecticut-based UIL said today in a statement. Morgan Stanley agreed to loan $1.9 billion to finance the deal.
Philadelphia Mayor Michael Nutter began steps to sell the gas works two years ago, citing a study by Lazard Ltd. that showed a sale would release the city from rising costs and financial risks. The acquisition will add 500,000 homes and businesses to UIL’s customer base.
“Selling PGW is a necessary step to protect the stability of our city’s finances,” Nutter told the Greater Philadelphia Chamber of Commerce Feb. 18, according to a city press release. “Selling PGW will infuse hundreds of millions of dollars into our struggling and severely underfunded pension system.”
UIL was the high bidder as determined by Nutter’s administration, the Philadelphia Daily News reported Feb. 28.
The purchase will immediately add to earnings upon closing, which is expected to take place by the first quarter of 2015, UIL said in the statement. UIL agreed to honor PGW’s current union contract, continue low-income assistance programs and freeze rates through 2017.
UIL fell 1.9 percent to $38.72 on Feb. 28. The shares are little changed this year.
Tudor, Pickering, Holt & Co. acted as lead financial adviser to UIL, while Morgan Stanley served as financial adviser and Sullivan & Cromwell LLP as legal counsel.