Aqua America’s Stock Plummets After Announces Acquisition of Peoples Gas

Jacob Maslow  |

Aqua America (WTR) stock fell as much as 10% last week before recovering. The water and wastewater company serves over 3 million residents in eight states

The company’s stock fell after announcing that they will be acquiring Peoples Gas in a $4.3 billion deal.

Peoples Gas is a Pittsburgh-based company that offers natural gas to consumers. The acquisition will be an all-cash deal, with Aqua also taking on $1.3 billion in Peoples Gas debt.

Aqua America claims that the acquisition will not have an impact on consumer prices, and Peoples Gas will continue to operate under the Peoples Gas name. All of the company’s sponsorships are expected to remain intact following the acquisition.

Regulatory approval will be needed in Kentucky, Pennsylvania and West Virginia, with both parties expecting the transaction to close in mid-2019.

Aqua America, a company offering sewer services and water to consumers will be entering the natural gas industry following the acquisition. The combined companies will be one of the largest public natural gas and water utilities in the country. The combined companies will service about 5 million Americans.

The new company will have around $10.8 billion in assets.

Logistical synergy will exist thanks to both companies being headquartered in Pennsylvania.The combined entity will have a rate of $7.2 billion, with 30% of the company comprised of natural gas and the remaining comprised of water.

Aqua America’s CEO Christopher Franklin will be CEO of both companies.

Share prices for Aqua America fell for a few reasons. The company will have to issue debt and offer new shares to be able to finance the acquisition. The company had just $53 million in cash at the end of the second-quarter, with $2.3 billion in debt.

Lack of experience in running a natural gas operation is a concern for investors that may view the deal as a “wait-and-see," as the company’s ability to properly run Peoples Gas remains in question. Peoples CEO will remain with the team under the new ownership, so this should help alleviate a lot of the initial investor fears.

Natural gas added to Aqua’s risk is also considerable, putting the company at higher overall risk, while water sales are considered rather stable compared to natural gas.

A positive third-quarter earnings report from Aqua should help to ease investor concerns.

DISCLOSURE: The author does not have any stakes in the listed equities


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