Central Hudson, the regional utility providing energy to much of the Mid-Hudson Valley, announced Tuesday, Feb. 21 that it has agreed to its sale to a Canadian electric and gas distribution firm, Fortis Inc., for about $1.5 billion in cash, including the assumption by Fortis of $500 million in Central Hudson debt. Holders of the common stock of CH Energy Group, parent company of the local utility, will get $65 per share, about a ten per cent premium over the stock price at its close Friday afternoon. According to releases from both companies, Central Hudson, which has assets of about $1.7 billion, will become a standalone subsidiary of Fortis, which has $13.6 billion in assets.
Central Hudson joins the parade of regional public utilities that have been consolidating in recent years. It was an earlier phase of consolidation allowed Central Hudson to merge over 80 independent electric and gas companies into Central Hudson Gas & Electric Corporation in the early twentieth century. Despite the merger with Fortis, the local energy company expects to remain headquartered in Poughkeepsie.
Fortis, more than three-quarters of whose relative modest generating capacity is from hydroelectric power, boasts of being the largest private distribution utility in Canada, with over two million gas and electric customers and 7100 employees in its regulated and non-regulated businesses. Central Hudson has about 1250 employees, of which 850 work in its regulated businesses.
Under long-time chief executive H. Stanley “Stan” Marshall, Fortis has supplemented its core businesses as a regulated utility with ownership of a range of non-regulated activities. It employs 2300 people in its 22 hotels and holds 2.7 million square feet of commercial and retail real estate in Canada through a subsidiary, Fortis Properties.
Fortis also owns small utilities in Grand Cayman Island and Turks and Caicos. It generates a small amount of hydro power in upper New York State and in Belize.
Why was Central Hudson a good fit for Fortis? “CH Energy’s regulated utility operations in New York State are similar to our regulated utility operations in Canada,” said the 60-year-old Marshall. He said the deal allowed Fortis to enter the American regulated electric and gas distribution business “with a reasonably sized utility.”
Central Hudson operates under cost-of-service regulation, allowing the company to earn a ten per cent return on equity in recent years. Its investments are expected to result “in attractive rate-base growth,” Marshall continued.
Starting as a modest utility in Canada’s Maritime Provinces, Newfoundland-based Fortis has gained “substantial experience” swallowing newly acquired utilities, such as major companies in Alberta and British Columbia, within the past decade. Now it’s ready to cross the U.S. border to add Central Hudson to its portfolio.
“We are extremely pleased to deliver compelling value to our shareholders and to become the first U.S.-based member of the Fortis federation of utility companies,” said CH Energy chairman Steven V. Lant. The two executives also said that Fortis “will maintain the current level of funding for the philanthropic organizations across Central Hudson’s service territory.”
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