EMERA INC. $42 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 145.3 million; Market cap: $6.1 billion; Price-to-sales ratio: 2.2; Dividend yield: 4.5%; TSINetwork Rating: Average; www. emera.com) is buying Teco Energy (New York symbol TE), which supplies electricity and natural gas to 1.05 million customers in Tampa Bay, Florida and surrounding areas. A separate subsidiary distributes gas to 510,000 customers in New Mexico. This a big purchase for Emera, which will pay $6.5 billion U.S. in cash. If you include Teco’s debt, the deal is worth $10.4 billion U.S., or 2.3 times Emera’s current market cap.
After Emera completes the purchase in mid-2016, it will have $20 billion U.S. of assets (56% in Florida, 23% in Canada, 10% in New England, 6% in New Mexico and 5% in the Caribbean).
Regulated utilities will provide 80% of the combined company’s earnings.
To help pay for Teco, Emera will sell up to $2.2 billion (Canadian) worth of convertible debentures. Holders can convert these debentures into Emera common stock at $41.85 a share. That could increase the total number of shares outstanding by 36%.
However, by 2019, Emera expects Teco to increase its earnings per share by 10%. The higher earnings will also help the company meet its goal of raising its dividend by 8% each year through 2019. The current annual rate of $1.90 yields 4.5%.
Emera is a buy.
