Spain’s Iberdrola to buy U.S. Energy East for US$4.5 billion

Spanish utility Iberdrola SA announced June 25 it will acquire Energy East Corp. a four-state energy generation and distribution company in the northeastern United States for US$4.5 billion.

Iberdrola said it would pay US$28.50 per share in cash for Energy East, marking a 26 percent premium over Energy East’s closing stock price June 25 of US$22.54 per share on the New York Stock Exchange.

Iberdrola completed the US$23 billion acquisition of Scottish Power in the United Kingdom only two months ago. (HNN 4/26/07) It also owns U.S. renewables marketer Community Energy Inc. (HNN 9/4/06) The Spanish firm said it viewed the United States as one of the best opportunities, with strong growth potential and favorable tax benefits for wind power development.

Iberdrola already has a wind power development pipeline in the United States and said it would explore opportunities to expand Energy East’s wind generation portfolio.

Five days before the acquisition announcement, Energy East Chairman Wesley von Schack told shareholders the U.S. company plans to invest more than US$3 billion in the next three years in reliability and infrastructure, while being environmentally responsive. (HNN 6/20/07) Energy East is New York State’s third largest hydroelectric generator and serves 3 million customers in New York and the New England states.

Following the purchase by Iberdrola, Energy East’s utilities are to continue to operate under their current names: Berkshire Gas Co., Central Maine Power Co., Connecticut Natural Gas Corp., New York State Electric &Gas Corp., Rochester Gas &Electric Corp., and Southern Connecticut Gas Co.

Iberdrola director Jose Luis del Valle said June 26 the utility will make a share issue to help finance the Energy East acquisition before completing the deal in the second half of 2008.

Analysts said the acquisition was expensive and likely to be interpreted as being defensive — part of Chairman Ignacio Sanchez Galan’s continued struggle with the company’s biggest shareholder, construction firm ACS. ACS controls nearly 12 percent of Iberdrola and has long been rumored to want to combine it with rival Union Fenosa, in which ACS owns a 40.5 percent stake.

“Iberdrola has paid a 27 percent premium but that’s justified in its defensive strategy to gain size and make it harder to be taken over by third parties,” said Jordi Padilla, head of analysis at Atlas Capital.

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