Energy East Corp. to acquire CMP Group for 25.2 times earnings

Weekly Corporate Growth Report, Jun 21, 1999

The Deal: Energy East Corporation has agreed to acquire CMP Group in a deal valued at $957 million, or $29.50/share. Energy East will also assume $271 million of CMP Group debt. Upon completion, CMP Group will become a wholly owned subsidiary of Energy East. The deal will be accounted for as a purchase and is expected to be accretive to Energy East's earnings per share in the first full year after closing. On the news, shares of CMP Group jumped $6.625, or 33%, to $26.6875/share, while Energy East fell 6.25 cents to $25.625/share.

Discussion: As deregulation continues to spread through the nationwide utility sector, companies are looking to expand their reach beyond traditional local and regional domains, especially in the Northeast. The past few months have seen Britain's National Grid Group PLC agree to acquire New England Electric System for $4.6 billion, while Boston-based BEC Energy agreed to buy Commonwealth Energy for $1.55 billion.

Just two months ago, Energy East agreed to acquire Connecticut Energy, a natural-gas provider, for $617 million. Even the purchase of CMP Group comes as no surprise since the two companies launched a natural-gas joint venture in the summer of 1998. These two deal put Energy East in the strategic position of becoming the leading energy distribution company in the Northeast. The company has said that it will continue to pursue other acquisitions. Analysts fell that utilities like Energy East will need to become much larger if they don't want to be swallowed up.

CMP Group is a Maine holding company. Its principal holding is Central Maine Power Company, a century-old electric utility that serve more than 530,000 retail customers in an 11,000 square-mile service territory in central and southern Maine. Aside from its principal holding, CMP Group subsidiaries include Union Water-Power, property management, real estate, utility services, and energy-efficiency contracting.