Canadian Utility Buys UNS Energy of Arizona for $2.5 Billion

Fortis, the biggest gas and electricity distribution utility in Canada, is making a move into the desert.

On Wednesday, it agreed to buy UNS Energy Corporation, a utility based in Arizona, for $2.5 billion in cash. The price of $60.25 a share represents a 31 percent premium over UNS’s closing share price of $45.84 on Wednesday. Fortis will also assume $1.8 billion of UNS’s debt, bringing the total value of the deal to $4.3 billion.

Though Fortis is based in St. John’s, Newfoundland, and primarily operates utilities in Canada, the company has experience in the United States as well. It owns both Central Hudson, a utility in upstate New York, as well as Griffith Energy Services, a non-utility provider of propane and heating oil to mid-Atlantic states.

Further afield, Fortis operates utilities in the Caribbean islands, and power generating assets in Belize. Altogether, Fortis serves more than 2.4 million customers, and had revenue of $3.7 billion last year.

In UNS, Fortis will acquire a big provider of electricity to the city of Tucson, and UniSource Energy Services, which provides natural gas and electricity a broader swath of southern Arizona. Taken together, the utilities have more than 650,000 customers.

Fortis plans to invest $200 million into UNS to bolster its balance sheet and help fund the planned acquisition of a natural gas-fired Gila River Power Plant. Completing that deal will reduce UNS’s reliance on coal, part of the company’s continuing push into renewable energy.

“Fortis has built a successful track record of investing in fundamentally strong utilities that remain deeply engaged with the communities they serve,” UNS’s chief operating officer, David Hutchens, said in a statement. “They proposed this partnership because they like the way we do business, not because they’re looking to change it.”

As with its other companies, Fortis plans to operate UNS independently. “UNS Energy will remain a standalone utility in the Fortis model,” Fortis’s chief executive, Stan Marshall, said in a statement. “Its headquarters and management team will remain in Tucson, Arizona and its customers will not pay for any costs related to the transaction.”

UNS shareholders will have a chance to vote on the transaction next year, and various regulators must also bless the deal before it can be completed.

Scotiabank advised Fortis, and White & Case, Davies Ward Phillips & Vineberg and Snell & Wilmer provided legal advice. Lazard advised UNS Energy, and Baker Botts provided legal advice.