TECO Energy Inc Conference Call to Discuss Emera Inc's Acquisition of TECO Energy Inc
Sep 08, 2015 AM EDT
EMA.TO - Emera Inc
TECO Energy Inc Conference Call to Discuss Emera Inc's Acquisition of TECO Energy Inc
Sep 08, 2015 / 01:30PM GMT
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Corporate Participants
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* Mark Kane
TECO Energy Inc - Director of IR
* John Ramil
TECO Energy Inc - President and CEO
* Chris Huskilson
Emera, Inc. - President and CEO
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Conference Call Participants
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* Ali Agha
SunTrust Robinson Humphrey - Analyst
* Raymond Noel
RBC Capital Markets - Analyst
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Presentation
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Operator [1]
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Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Emera acquisition of TECO Energy conference call.
(Operator Instructions)
I would now like the turn the call over to Mr. Mark Kane, Director of Investor Relations, TECO Energy. Please go ahead.
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Mark Kane, TECO Energy Inc - Director of IR [2]
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Thank you, Michelle. Good morning, everyone. Welcome to the TECO Energy Emera acquisition conference call. The acquisition was announced Friday afternoon, and that release is available on both the TECO Energy and Emera websites. Emera hosted a call Friday evening, and that call is available for replay on the Emera website at www.emera.com.
This presentation is being webcast at TECOEnergy.com and the slides for the presentation are available on the TECO Energy website. The presentation will be available for replay through the TECO Energy website approximately two hours after the conclusion of our presentation and will be available for 30 days.
In the course of our remarks today we will be making forward-looking statements about the acquisition approval process and timing and financing activities. There are a number of factors that could cause actual results to differ materially from those that we'll discuss today. For a more complete discussion of these factors, we refer you to the risk factor discussion in our Annual Report on Form 10-K for the period ended December 31, 2014. Emera's continuous disclosure materials filed from time to time with Canadian Security Regulatory Authorities and Safe Harbor statement in the press release related to the acquisition made last Friday.
The host for our call today is John Ramil, TECO Energy's President and CEO and Chris Huskilson, Emera's President and CEO. Now I will turn it over to John.
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John Ramil, TECO Energy Inc - President and CEO [3]
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Thank you, Mark. Good morning, everybody. Thank you for joining us today. Hopefully everybody had a great, safe holiday weekend.
Let me first address the timing of our announcement. Friday afternoon is not the best time usually to do that, but it turned out to be the right time in this case. First of all, it's good form that as soon as these deals are made, we get them announced as soon as possible. And that happened shortly after 4:00 on Friday afternoon. It was in everybody's best interest for Emera to get started with their financing very quickly. And as Mark mentioned, they had an investor call on Friday evening to launch that. So, thus the timing of Friday afternoon.
By now I think everybody has probably read about the deal, but let me review a few things. Friday afternoon, our Board followed the Emera board and approved a definitive agreement for Emera to acquire TECO Energy in a $10.4 billion transaction. That includes the assumption of $3.9 billion of debt at TECO Energy.
The purchase price is $27.55 per share. It's an all cash transaction, and that is a 48% premium to the unaffected share price of July 15, which is the day before the SparkSpread article came out and affected our stock price. It's also a 25% premium to the unaffected 52-week high price for TECO Energy shares. You can see, with those numbers, that the transaction recognizes the value of TECO Energy, and it rewards our shareholders for their confidence and continued investment in TECO Energy.
As part of the agreement, and communication of the transaction, Emera is committed to TECO Energy team members and the communities that they serve. They will continue to support all the same levels of support that TECO Energy has given over time. TECO Energy, Tampa Electric, and People's Gas headquarters will remain in Tampa Florida. And New Mexico Gas Company headquarters were remain in Albuquerque, New Mexico. Chris' team is also committed to form operating boards in Florida and New Mexico, as has been their practice with operating utilities that they currently own and operate. From a customer standpoint rates at Tampa Electric, People's Gas and New Mexico Gas Company will be unchanged by the transaction.
We expect the transaction to close by mid 2016, and the typical regulatory approvals are required for the transaction. Those include the Federal Energy Regulatory Commission, the New Mexico Public Regulation Commission, a filing under Hart-Scott-Rodino Act for a review, and an approval from the Committee on Foreign Investment in the United States.
As part of the transaction, Emera has committed to comply with all the conditions in the New Mexico Gas Company acquisition approval. Their plan is to operate that business in much the same way that TECO Energy is operated. In fact, as we think about the transaction under Emera's ownership, the Florida operations and the New Mexico operations, to customers and to communities, the companies will look very similar to how they look today.
With that brief overview, it's now my pleasure to introduce Chris Huskilson, the President and CEO of Emera, Inc. who will give perspective and plans on the transaction. Chris?
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Chris Huskilson, Emera, Inc. - President and CEO [4]
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Thank you, John. Thank you for including us in your call. First of all, I think it's important to note that this is a very important transaction for Emera and a very exciting transaction for us as a business. We have been very patient as a business, and disciplined in how we have looked at moving forward with our strategy.
Certainly, our shareholders have seen that through the years on the various things that we have done. What we have been doing is looking very carefully in recent years, for more regulated earnings. That is where really TECO Energy becomes a perfect match for Emera.
We are in the position with this transaction of being able to merge with essentially 100% regulated business. And that pure play regulated business is one that fits our strategy and our objectives extremely well. In fact, even the TECO Energy strategy is very well aligned to the strategy that Emera has today.
Certainly focused on serving customers very, very well. Focused on affordability for customers, and focused on the transformation that's going on in this industry today from higher carbon sources of electricity and energy in total to lower sources of carbon or lower intensity sources of carbon. That's something that TECO has been focused on for some time. They're in that transition as we speak, and that is very much a direct alignment with Emera's strategy.
Lastly, from an overall strategic perspective, this adds tremendous capacity to our organization. We are very excited about merging with the 3700 people that make up TECO Energy today, and we are very excited about what that will mean for us for the future. So, the transaction is accretive to Emera in the first full year. In fact, we believe that it's 5% or more accretive in the first full year. And then by three years out, it will be 10% or more accretive to the business. It's also very accretive to cash flow.
This will move us to 84% regulated earnings. Really essentially, in one step, meeting our objective around the regulated earnings mix perspective and that strengthens our business. It strengthens our access to capital and strengthens our credit metrics. It provides tremendous support to our dividend, because it is accretive.
As you saw in early August we increased our dividend and also increased our dividend guidance. This transaction is very, very supportive of that step.
Last, but certainly not least, it gets us into gas LDCs both in New Mexico and in Florida. That's something that Emera has had as an objective for some time.
If I move to looking at what the companies look like from a pro forma basis, geographically, we are now dispersed from the Northeast and the Southeast and in fact in the Southwest. Our business stretches really from in the northeast from Labrador to New York; in the Caribbean from Bahamas to Barbados; and now Florida and New Mexico. Two very, very good markets for us to do business.
If you look at the actual make up of the business post-close, Tampa Electric will be 38% of the business. Nova Scotia Power will be 17% of the business, and the gas LDCs will be 10% of the business. And 75% of the business will be outside Canada serving 2.4 million customers. From an overall metrics perspective, the merged entity is about CAD5.8 billion in revenue, about CAD27 billion in assets, and in excess of CAD2.2 billion from an EBITDA perspective. And so it is a substantive change for the business.
When we look at this transaction, we are very committed to the local communities that we serve. As John said earlier, we are committed first and foremost to the stipulations that were agreed with New Mexico in the 2014 TECO acquisition. Those stipulations are a commitment of Emera as well. We are committed to continuing a high level of customer service, and operational excellence for the business. And we are committed to invest in cleaner, reliable, affordable energy serving our customers across the entire regions.
On the community front, we will continue to invest in Florida and New Mexico communities as TECO Energy has. TECO Energy has a fine tradition of serving these communities and supporting these communities for the last 115 years. And in fact, we will be very proud to be able to continue that tradition.
As John said, the headquarters locations will remain in Florida and in New Mexico. And as well, as John said, we'll set up local operating boards that will help guide us as we serve these communities.
And then last but not least, we have -- are making a very deep commitment to TECO's existing employees. We will be seeking to retain the entire management team and employees in this organization. And we see a tremendous alignment and a tremendous building of capacity between ourselves and TECO as a result of this.
John, we were able to put out a press release this morning, announcing a bought deal of convertible debentures that we have actually put in place. It's a $1.9 billion deal -- sorry CAD1.9 billion deal with an over allotment up to [CAD285 million]. That transaction was launched this morning. I would note that the securities are not offered, or able to be sold in the United States just for a reference perspective. But for us, that completes the common equity financing that we require for this transaction. So, we can move forward, very comfortable that we have the common equity that we require to do this transaction.
As we have said in the past, we'll continue to issue more preferred equity, which will also bolster the equity side of our business. And then last but not least we'll issue some more debt as part of this transaction. From a preferred equity perspective, it will be somewhere between $800 million and $1.2 billion US, and from a debt perspective between $3.4 billion and $3.8 billion US.
Last but not least, the schedule for this transaction. Obviously we announced the transaction on Friday night. We expect over the next short period that we'll make filings with all of the regulatory authorities that will be required: Hart-Scott-Rodino, the FERC, and also New Mexico. Those filings will be made in the next number of weeks.
As well, we'd expect that the shareholder vote will occur sometime in the next two to three months. Then and therefore, we are expecting to be able to close the transaction sometime in the middle of 2016.
John, with that I think we just turn it over to you. Thank you very much.
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John Ramil, TECO Energy Inc - President and CEO [5]
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Thank you, Chris. I appreciate you joining us this morning and providing that information to our investors. Let me just summarize very quickly and then we'll take questions.
This transaction is a testament to the value that has been built at TECO Energy. The $27.55 a share transaction price delivers a significant premium of 48% to the unaffected stock price to our shareholders. And TECO Energy will enjoy the benefits of increased scale that's achieved this transaction. That benefit will flow through to our customers and communities. For our team members, being part of a larger more diverse organization, we believe this creates new opportunities for all of them as well.
With that, let us stop our presentation, and we'd be pleased to take your questions at this point.
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Questions and Answers
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Operator [1]
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(Operator Instructions)
Ali Agha, SunTrust.
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Ali Agha, SunTrust Robinson Humphrey - Analyst [2]
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Thank you. John, good morning again.
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John Ramil, TECO Energy Inc - President and CEO [3]
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Good morning.
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Ali Agha, SunTrust Robinson Humphrey - Analyst [4]
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First question, can you tell us was this a competitively bid process that ended up with this transaction? Or was this sort of just a negotiated deal between the companies?
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John Ramil, TECO Energy Inc - President and CEO [5]
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When the SparkSpread story came out, we did issue a release stating that our Board had retained Morgan Stanley to review its strategic alternatives. Through that process we did have a competitive process, and this was the best result from that process.
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Ali Agha, SunTrust Robinson Humphrey - Analyst [6]
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I see. Secondly, can you also clarify -- on Friday night you talked about exiting the coal operations likely before the deal were to close. But if the coal operations are not exited by then, does that change either the price or any terms of the transaction?
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John Ramil, TECO Energy Inc - President and CEO [7]
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The transaction happening is not dependent upon the coal business deal closing. Having said that, Emera and TECO both agree that we need to exit the coal business. Our expectation is that's going to happen sooner rather than later.
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Ali Agha, SunTrust Robinson Humphrey - Analyst [8]
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I see. But that will not affect -- if that does not happen does not affect any of the terms of the transaction here?
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John Ramil, TECO Energy Inc - President and CEO [9]
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It does not.
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Ali Agha, SunTrust Robinson Humphrey - Analyst [10]
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Thank you.
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Operator [11]
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Your next question comes from Raymond [Noen] from RBC Capital Markets. Your line is open.
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Raymond Noel, RBC Capital Markets - Analyst [12]
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Hey guys. Congratulations.
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John Ramil, TECO Energy Inc - President and CEO [13]
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Thank you.
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Raymond Noel, RBC Capital Markets - Analyst [14]
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Thanks for the additional slides on the financing strategy, but could I maybe get into that a little deeper? Can you talk about -- you got the equity offering. But the debt offering, what are you guys thinking? Is the debt issuance coming out of Emera or TECO and what do you think, longer term of the TECO bonds? Is that going to be a -- no longer the planned issue out of that box and you'll just issue out of Emera? If you can elaborate on that, that would be very helpful to me.
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Chris Huskilson, Emera, Inc. - President and CEO [15]
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Yes. It's certainly a bit early to talk about exactly how the financing will unfold. First and foremost, I would say that we don't have any intention or ?- we don't have any intention and we are not planning to issue any more debt out of the existing operating companies. The debt that gets issued will be issued out of Emera in some form or another.
But, as we do with most of our other utilities we will continue to issue debt on an ongoing basis from the OpCo's, to have the appropriate capital structure for them. But none will be issued associated with this transaction.
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Raymond Noel, RBC Capital Markets - Analyst [16]
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Okay. Just to clarify, when I was asking about TECO I meant the Holding Company.
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Chris Huskilson, Emera, Inc. - President and CEO [17]
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As I said it's too early to say exactly how we'll be financing the debt at this point. You can just think about it as being Emera debt today.
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Raymond Noel, RBC Capital Markets - Analyst [18]
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Okay and just two other things, or maybe one. Do you plan to cross guarantee the debt? And also, can you talk about what you stand with rating agencies? We saw Dominion Resources -- Dominion indicated ?- the bond rating indicated to take some rating action but any thoughts on what S&P may say?
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Chris Huskilson, Emera, Inc. - President and CEO [19]
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First of all, it's not uncommon for the rating agencies to put organizations on watch as these things go forward. In fact, I think it is also quite common, especially associated with the type of equity offering that we've made.
So, it is a debenture as it starts off and so it does add a little bit to the debt load of the organization until it converts, which it will do upon closing of the transaction. It's not unusual at all for rating agencies to put organizations on watch when that is the case. So I don't see that as unusual.
Then secondly, we have designed this transaction, and the financing of this transaction to continue to maintain the BBB+ rating that we have for our organization, and for the OpCo's that exist in the organization. And we are confident that the financing we are going to do will do that.
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Raymond Noel, RBC Capital Markets - Analyst [20]
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Okay. Great. Just cross guarantees between TECO Holding Company debt and Emera, any thoughts on that?
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Chris Huskilson, Emera, Inc. - President and CEO [21]
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Well again, as I said, what we're talking about relative to this transaction, I would just consider it Emera debt.
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Raymond Noel, RBC Capital Markets - Analyst [22]
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Okay. Thank you.
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Operator [23]
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(Operator Instructions) At this time, I have no further questions in queue. I'll turn the call back over to the presenters for closing remarks.
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John Ramil, TECO Energy Inc - President and CEO [24]
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Thank you very much for joining us this morning. Appreciate everybody's interest in TECO Energy and Emera, and have a good week.
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Chris Huskilson, Emera, Inc. - President and CEO [25]
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Thank you, John.
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Operator [26]
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Thank you, everyone. This concludes today's conference call. You may now disconnect.
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