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SJW Group & Connecticut Water Amend Deal to All-Cash Affair

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SJW Group (SJW - Free Report) and Connecticut Water Service announced an amendment to the merger agreement, which was initially announced on Mar 15, 2018. (Read more: Connecticut Water Service to Merge With SJW Group). Per the amendment, the previously announced merger agreement from a stock-for-stock transaction will now be an all-cash acquisition.

Details of the Amendment

Per the amendment, each shareholder of Connecticut Water Service will receive $70 for each share, bringing the total value of the deal to $1.1 billion. The new amendment will offer better premium to the shareholders of Connecticut Water Service, as the previous stock-for-stock transaction was valued at $750 million.

SJW Group will fund the purchase through a mix of debt and equity, and assume Connecticut Water’s existing debt. The revised transaction is expected to close in the first quarter of 2019, subject to necessary approvals and customary closing conditions.

Gain for Both Companies

The new offer provides a 33% premium to the shareholders of Connecticut Water Service (from unaffected closing share price of $52.57 on Mar 14, 2018) and the acquisition will be immediately accretive to SJW Group’s earnings.

Companies Remain Committed
 
Though Connecticut Water Service announced an amendment in their merger agreement, both the companies remain committed to the deal. This amendment includes a new go-shop provision that will allow Connecticut Water Service to explore offers of an alternative merger, acquisition or other strategic transaction.

Eversource Energy (ES - Free Report) tried twice to acquire Connecticut Water Service for expanding its operation in the Northeast, but both the attempts were rejected by Connecticut Water Service, citing that the offer made by Eversource is inferior to that of SJW Group’s. (Read more: Eversource Reaffirms Offer to Acquire Connecticut Water)

Merger and Acquisition in the Water Space

The water utility industry offers excellent growth opportunities, resulting in rising interest in this space shown by companies that were earlier focused primarily on other businesses. Acquisitions are essential for this fragmented industry, which needs a huge amount of infrastructural investment to provide high quality of services.  

American Water Works (AWK - Free Report) , a premier water utility, is very active in expanding its market footprint through strategic acquisitions. Till Jun 1, 2018, the company added 5,524 new customers through completed acquisitions. The pending acquisitions, when completed, are expected to add more than 54,000 customers to its customer base. The company aims at pumping $8.0-$8.6 billion to strengthen its operation from 2018 through 2022, which will help improve the company’s earnings by 7-10% per year in the said period from a 2016 base.

Price Movement

In a year’s time, shares of SJW Group have gained 12.9% compared with its industry's growth of 0.9%.



Zacks Rank

Currently, SJW Group has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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