Canadian Utilities has announced:
- Emera and Canadian Utilities will combine in a merger of equals to form a Top 20 North American utility, with approximately $72 billion in combined enterprise value2, $45 billion in rate base3 and six million customers.
- Creating a Canadian champion with greater financial strength, operating capabilities and investment capacity, the combined company is expected to benefit from improved credit rating thresholds, providing greater financial flexibility to better support its customers and communities.
- The combined company plans to execute on a $32 billion capital plan through 2030, supporting expected average annual rate base growth of 7% to 8%, while continuing to pursue investments in growth opportunities driven by electrification, transmission, energy security and other major energy infrastructure needs across Canada, the United States and Australia.
- Emera shareholders are expected to own approximately 60% of a substantially larger and more diversified company, with the transaction expected to be accretive to adjusted EPS in the first full year following closing, enhancing the combined company’s credit profile and supporting long-term earnings and dividend growth.
- Canadian Utilities’ shareholders will receive approximately 40% ownership in the $72 billion larger combined company, while benefiting from an approximately 20% expected increase in dividend income.4
- Both Canadian Utilities and Emera will benefit from greater geographic and regulatory diversification, enhanced financial flexibility and continued exposure to two of the fastest growth jurisdictions in North America – Florida and Alberta.
- The combined company will operate as Emera and maintain its public company headquarters in Halifax and Canadian Utilities’ corporate and operational headquarters in Calgary, Edmonton and Perth, Australia. Emera CEO, Scott Balfour, will serve as CEO of the combined company and Canadian Utilities Executive Chair, Nancy Southern, will serve as Co-Chair of the Board with current Chair, Karen Sheriff.
- In connection with the transaction, ATCO will spin off into a new publicly-traded industrial services leader made up of housing, defence and investments, including ports and retail energy. ATCO Chair and CEO, Nancy Southern, will serve as Chair and CEO of the new entity.
ATCO shareholders will receive an interest in both the combined energy company, Emera and the purpose-built New ATCO with dedicated leadership, capital and strategic focus in both companies.- ATCO’s controlling shareholder, Sentgraf Enterprises Ltd., has signed a voting support agreement to support the transaction.
- The transaction was approved following comprehensive reviews by all three Boards, including independent Special Committees for ATCO and Canadian Utilities, supported by independent financial and legal advice.
…
Voting support agreementsSentgraf, which holds approximately 27% of the outstanding non-voting shares and all outstanding voting shares of ATCO, has entered into a voting support agreement pursuant to which it has irrevocably agreed to vote its ATCO shares in favour of the transaction, and against any competing acquisition proposals.
In addition, each of the directors and executive officers of ATCO, have entered into voting support agreements agreeing to vote their ATCO shares in favour of the continuance and the transaction.
ATCO, which holds approximately 37% of the outstanding non-voting shares and all outstanding voting shares of Canadian Utilities, has entered into a voting support agreement pursuant to which it has agreed to vote its Canadian Utilities shares in favour of the transaction, and against any competing acquisition proposals. In addition, each of the other directors and executive officers of Canadian Utilities, have entered into voting support agreements agreeing to vote their Canadian Utilities shares in favour of the transaction.
All directors and executive officers of Emera have entered into voting and support agreements pursuant to which they have agreed to vote their Emera shares in favour of the transaction.
Timing and conditions to closing
Completion of the transaction is subject to the satisfaction of customary conditions, including applicable shareholder, court and regulatory approvals. The transaction is expected to close in the third or fourth quarter of 2027.
Shareholder approvals
The transaction will be effected by way of a court-approved plan of arrangement under the Canada Business Corporations Act. The arrangement will require approvals from ATCO and Canadian Utilities securityholders at special meetings to be called in connection with the transaction. On each such resolution, all applicable ATCO and Canadian Utilities securityholders (including holders of non-voting shares, options and SARs) are entitled to one vote for each security held. In order to proceed, the arrangement must be approved by:
- at least two-thirds of the votes cast by holders of ATCO Class I and Class II shares, voting together as a single class;
- at least two-thirds of the votes cast by holders of ATCO Class I and Class II shares, ATCO options and ATCO SARs, voting together as a single class;
- at least two-thirds of the votes cast by holders of Canadian Utilities Class A shares;
- at least two-thirds of the votes cast by holders of Canadian Utilities Class B shares;
- at least two-thirds of the votes cast by holders of Canadian Utilities Class A and Class B shares, Canadian Utilities options and Canadian Utilities SARs, voting together as a single class;
- a simple majority of the votes cast by the holders of Canadian Utilities Class A shares, excluding votes required to be excluded under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions; and
- a simple majority of the votes cast by Emera shareholders for the issuance of Emera shares in connection with the transaction
in each case by applicable holders present or represented by proxy at the applicable meeting, and such other approvals as may be required under applicable securities laws or by the Court of King’s Bench of Alberta in connection with the arrangement.
Fitch Ratings has announced:
Fitch Ratings has affirmed ATCO Ltd.’s (ATCO) Long-Term Issuer Default Ratings (IDR) at ‘BBB+’ and Canadian Utilities Limited (CUL)’s and CU Inc.’s Long-Term IDRs at ‘A-’. Fitch has placed ATCO’s and CUL’s Long-Term IDRs on Rating Watch Negative (RWN). CU Inc.’s Rating Outlook is Stable.
The RWN reflects Fitch’s expectation that ATCO and CUL will become intermediate holding companies when Emera Incorporated (BBB/Stable) and CUL complete their merger through all-share acquisitions of ATCO’s and CUL’s minority shares. Both companies will have limited or no independent access to external capital. Fitch expects to equalize their ratings with Emera’s.
CU Inc.’s Stable Outlook reflects Fitch’s expectation that its rating will remain above Emera’s consolidated credit profile. This reflects CU Inc.’s wholly regulated Alberta electricity and natural gas transmission and distribution operations and continued access to external debt markets. The ratings also reflect constructive regulatory environments in Alberta and Australia, which support credit metrics during an elevated capital expenditure cycle centered on the Yellowhead pipeline project.
At the same time, Fitch has placed ATCO’s unsecured notes rated ‘BBB+’ and fixed-to-floating subordinated notes rated ‘BBB-’ on RWN. Fitch has placed CUL’s senior unsecured debt rated ‘A-’, cumulative redeemable preferred shares and junior subordinated notes rated ‘BBB’, Short-Term IDR rated ‘F2’ and commercial paper (CP) program rated ‘F2’ on RWN. Fitch has affirmed CU Inc.’s senior unsecured debt at ‘A’, cumulative redeemable preferred shares rated ‘BBB+’, Short-Term IDR rated ‘F2’ and CP program rated ‘F2’.
Fitch expects to resolve the Rating Watch when the transaction closes. Given the expected closing timeline, the RWN may remain in place for more than six months.
S&P affirmed Emera:
- Halifax, Nova Scotia-based Emera Inc. announced today it entered a definitive agreement to merge with Calgary, Alberta-based Canadian Utilities Ltd. (CUL) in an almost-all-share-backed transaction. Emera will remain the existing entity.
- S&P Global Ratings expects the transaction will close by the end of 2027, pending approval from Emera and CUL shareholders, and U.S., Canadian, and Australian federal and provincial regulatory approvals.
- We expect the merger to create a larger entity with enhanced regulatory and operating diversity and a group credit profile consistent with that for Emera.
- We affirmed all our ratings on Emera, including the ‘BBB’ issuer credit rating, and the ‘BBB-’ rating on subsidiary Nova Scotia Power Inc. (NSPI) and ‘BBB+’ rating on subsidiary Tampa Electric Co. (TEC).
- The stable outlook reflects our expectation that the combined entity’s financial measures will reflect funds from operations (FFO) to debt averaging 12% in fiscal years 2028 and 2029.
Several years ago, S&P withdrew their ratings on CU & CIU:
TORONTO (S&P Global Ratings) July 12, 2023–S&P Global Ratings withdrew its ‘BBB+’ long-term issuer credit ratings (ICRs) and all related debt issue ratings on ATCO Ltd. (ATCO) and subsidiary Canadian Utilities Ltd. (CUL) at their request. At the same time, we also withdrew our ‘A-‘ ICR and all related debt issue ratings on ATCO’s subsidiary CU Inc. (CUI) at their request. At the time of the withdrawal, the outlooks on the ratings on ATCO and subsidiaries were stable.
Moody’s affirmed Emera:
Moody’s Ratings (Moody’s) today affirmed Emera Inc.’s (Emera) Baa3 senior unsecured and Issuer ratings following the company’s announcement of an all-share combination with Canadian Utilities Limited (CUL). At the same time, we affirmed the ratings of Tampa Electric Company (Tampa Electric), including its A3 senior unsecured and Issuer ratings and P-2 short-term rating for commercial paper. The rating outlooks for both companies are stable.
We also affirmed the Baa3 senior unsecured ratings of Emera US Finance LP, Emera US Finance, LLC, and TECO Finance, Inc., along with the Ba1 junior subordinated ratings of Emera US Finance, LLC and EUSHI Finance, Inc. All of these entities’ debt obligations are guaranteed by Emera. The rating outlooks for these companies are stable.
So, it looks like we’re going to lose an investment-grade name. Again. But fear not, investment fans!
“Our goal is to create a Canadian champion,” said Scott Balfour, Emera’s chief executive officer, in an interview. He said the merger will create a company with the scale and financial strength needed to build networks that support projects such as data centres, new natural gas pipelines and integrated provincial electrical grids.
A “Canadian champion”, as far as I have ever been able to tell, is a company that gets lots of government financial and regulatory support, routed through schemes including networks that support projects such as data centres, new natural gas pipelines and integrated provincial electrical grids. A Canadian champion makes good money for its shareholders (and officers) through government protection shielding them from domestic competition, so they can more effectively rip off consumers by doing barely acceptable work for premium charges. The Toronto Stock Exchange, for example, is a Canadian champion. So are the banks, telecoms and airlines. The petite bourgeoisie whose opinion matters think it’s great because they’re all invested up to their eyeballs in these companies. It’s Canada’s version of state capitalism.
Affected issues are: CIU.PR.A, CIU.PR.C, CU.PR.C, CU.PR.D, CU.PR.E, CU.PR.F, CU.PR.G, CU.PR.H, CU.PR.J, CU.PR.K, EMA.PR.A, EMA.PR.C, EMA.PR.E, EMA.PR.F, EMA.PR.H, EMA.PR.J & EMA.PR.L,