PPL to acquire Kentucky utility company

PPL Corporation (NYSE: PPL) and E.ON AG today announced a definitive agreement under which PPL will acquire E.ON U.S. LLC, the parent company of Kentucky’s two major utilities, Louisville Gas & Electric Company and Kentucky Utilities Company. These high-performing utilities serve 1.2 million customers, principally in Kentucky.rnrnPPL is acquiring E.ON U.S. for $7.625 billion and will receive tax benefits with a present value of about $450 million as part of the transaction. Taking into account the tax benefits, the effective purchase price is $7.175 billion.rnrnThe acquisition will transform PPL into a more geographically diverse utility holding company with combined annual revenues of about $10 billion, serving nearly 5 million electricity customers in the United States and the United Kingdom, and owning or controlling about 20,000 megawatts of U.S. electricity generating capacity.rnrn“This is a transformational, value-rich transaction, which will immediately improve PPL’s business mix by adding high-performing regulated utility operations to our already strong combination of excellent regulated businesses and our high-value competitive generation fleet,” said James H. Miller, PPL’s chairman, president and chief executive officer.rnrn“We are adding scale, creating a much stronger and more diversified enterprise while providing additional opportunities for regulated-business growth and, importantly, retaining the upside benefits of our competitive fleet when wholesale power market prices improve,” said Miller. “Clearly, for PPL shareowners, this is the right deal at the right time.”rnrnThe transaction, Miller said, takes advantage of “a rare opportunity to add to PPL the experience, talent and values of an organization with a proven track record of cost-effective operations, a strong focus on customer service and constructive regulatory relationships.”rnrnMiller said PPL intends to operate the company as a wholly owned subsidiary of PPL Corporation, retaining the headquarters in Louisville, as has been the case with E.ON AG ownership. Customers will continue to be served by LG&E and KU, with operational headquarters in Louisville and Lexington, respectively.rnrn“We are very pleased to join the excellent management team and employees of PPL, who operate one of the most effective and customer-friendly utilities in the United States and the U.K.,” said Vic Staffieri, chairman, chief executive officer and president of E.ON U.S.rnrnPPL, Miller said, is committed to providing the highest quality service to Kentucky customers and does not anticipate any change in Kentucky employment levels as a result of this transaction.rnrnPPL will pay for the transaction with $6.7 billion of cash and through the assumption of $925 million of tax-exempt debt. PPL has committed bridge financing in place from Bank of America Merrill Lynch and Credit Suisse. Miller said the permanent financing plan will include a combination of common equity, first mortgage bonds, corporate debt, high-equity-content securities and cash on hand. Proceeds from the sale of PPL non-core assets may be explored as a potential to fund a portion of the transaction.rnrnMiller said the transaction is anticipated to be modestly dilutive in the first full year and accretive to earnings by 2013.rnrn“Adding the proven operations of LG&E and KU in the constructive Kentucky regulatory framework will enhance the overall business risk profile of PPL, which we believe will lead to improved access to capital, a stronger credit profile and solid, investment-grade credit ratings in each of our businesses,” said Miller.rnrnMiller also said that the company expects to announce next week (May 6) reported earnings of $0.66 per share for the first quarter of 2010 compared with $0.64 per share for the first quarter of 2009, and earnings from ongoing operations of $0.94 per share for the first quarter of 2010 compared with $0.60 per share for the first quarter of 2009.rnrnAt that time, he said, the company also will reaffirm its 2010 forecast of earnings from ongoing operations of $3.10 to $3.50 per share and for reported earnings of $2.82 to $3.22 per share (reflecting special items recorded through March 31, 2010). These forecasts do not reflect any impact of this transaction or the related financings. rnrnThe transaction is expected to close by the end of this year. It requires approvals by state regulators in Kentucky, Virginia and Tennessee and by the Federal Energy Regulatory Commission as well as the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. No shareowner approvals are necessary for the transaction. Credit Suisse and Bank of America Merrill Lynch served as PPL’s financial advisers. Simpson Thacher & Bartlett, LLP, served as legal adviser.rnrnE.ON U.S., through LG&E and KU, provides electricity service to 941,000 customers, mostly in the state of Kentucky, with some customers in Virginia and Tennessee. LG&E also provides natural gas delivery service to 321,000 customers in Kentucky. E.ON U.S. has about 3,100 employees and owns and operates about 8,000 megawatts of regulated electric generation capacity.rnrnPPL Corporation, headquartered in Allentown, Pa., owns or controls nearly 12,000 megawatts of generating capacity in the United States, sells energy in key U.S. markets and delivers electricity to about 4 million customers in Pennsylvania and the United Kingdom. The company has about 10,000 employees. Click here for a fact sheet for the combined companies.