AYE Crosses Merger Hurdles - Analyst Blog

Allegheny Energy Inc. (AYE) has received twin approvals from the Public Service Commission of West Virginia (WVPSC) and the Federal Energy Regulatory Commission for its impending merger with FirstEnergy Corporation (FE).

The deal between FirstEnergy and Allegheny Energy to combine their operations dates back to February 11, 2010. In the pact, the companies agreed to merge in a stock-for-stock transaction worth $4.7 billion.

Based in Greensburg, Pennsylvania, Allegheny Energy Inc. owns and operates electric generation facilities, and delivers electric services to customers in Pennsylvania, West Virginia, Maryland and Virginia.

Based in Akron, Ohio, FirstEnergy involves in the generation, transmission, and distribution of electricity, as well as energy management and other energy-related services.

FirstEnergy's merger with Allegheny is expected to create a premier energy company, with ten regulated electric distribution companies, serving 6 million customers in seven states. Upon closing, this will create a combined company with roughly $16 billion in annual revenues and $1.4 billion in annual net income, based on both companies' results as of December 31, 2009.

The merger, which received unanimous support from the board of directors of both companies, requires certain approvals of the majority of shareholders of both companies. The merger is expected to be completed in the first half of 2011.

However till date the two utilities are awaiting merger approval from the Pennsylvania Public Utility Commission and the Maryland Public Service Commission.

The merged company, with a more diversified energy delivery business and stronger generation portfolio, will enhance customer service, reliability and operational flexibility. Furthermore, it is expected to provide enhanced earnings growth and shareholder return potential and opportunity to create value through increased scale, scope and diversification.  The transaction is expected to be accretive to earnings in the first full year, following the completion of the merger.

Though we are positive on the proposed merger between FirstEnergy and Allegheny, we believe there remains an element of risk regarding the smooth and timely completion of the merger due to the pending regulatory approvals. Thus, we maintain our Neutral recommendation for both FirstEnergy and Allegheny. Currently, both FirstEnergy and Allegheny retain their Zacks #3 Ranks (Hold).

 
ALLEGHENY ENGY (AYE): Free Stock Analysis Report
 
FIRSTENERGY CP (FE): Free Stock Analysis Report
 
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