LG&E Energy to acquire rival KU Energy in stock-swap worth 2.09 times revenue

Weekly Corporate Growth Report, Jun 2, 1997

The Deal: LG&E Energy, one of the nation's leading power marketers, has agreed to acquire neighboring KU Energy in a stock-swap valued at $1.5 billion. The combination calls for KU Energy shareholders to receive 1.67 shares of LG&E common stock for each share of KU Energy common. On the news, KU Energy shares closed up $4.125, or 14%, to close at $34/share, while LG&E slid $1.75, or 7.2%, to $22.625. Based on the closing price, KU shareholders would receive LG&E shares with a market value of $27.78 for each KU share. The deal is expected to be accounted for as a taxfree pooling of interests.

Discussion: LG&E and KU Energy would combine their two operating subsidiaries; the Louisville Gas and Electric Company and the Kentucky Utilities Company, respectively The new combined company would have revenues of $4.3 billion and 1.1 million customers.

Even though it has a modest home market, LG&E is the largest utility in Kentucky and has already become one of the largest electricity and natural gas wholesalers in the country. Aside from consolidating its position in Kentucky, the acquisition of KU Energy will expand LG&E's generating capacity to compete in other markets that are opening to outsiders with the onset of deregulation.

Since they receive most of their electricity from coal both companies are among the industry's most efficient power generators, creating one of the largest low-cost energy holding companies in the country.