NEW YORK (Reuters) - SJW Group (SJW.N) and Connecticut Water Service, Inc. (CTWS.O) plan to merge, they said on Thursday, which would create the third-largest investor-owned water and wastewater utility in the United States.
The combined company will have an equity value of around $1.9 billion and 1.5 million customers in four states: California, Connecticut, Maine and Texas.
Mergers and acquisitions in the water utility space offer providers increased scale and efficiency, at a time when new investment is needed to improve infrastructure and water usage has been broadly falling - in particular in California, which has experienced severe drought conditions in recent years.
“The combination will establish a premier organization with substantial opportunities for new investment across a diverse set of geographies and an improved ability to serve our customers,” said Eric Thornburg, chief executive of SJW Group.
Thornburg, who will be chairman and CEO of the combined company, joined the San Jose, California-based firm in November, having served as CEO of Connecticut Water for 10 years.
Under the agreement, Connecticut Water shareholders will receive 1.1375 shares of SJW stock for each of their shares, equating to a value of $61.86 per share, according to a joint statement. SJW shareholders will own 60 percent of the combined company.
SJW’s share price was 4.4 percent lower at 1300 ET at $51.96, while Connecticut Water was 9.1 percent higher at $57.33.
The tie-up was expected to be immediately accretive to both sets of shareholders, “increasing to mid- to high-single digit accretion in earnings per share over the next couple of years”, the statement said.
It would also provide the combined company a stronger financial foundation, allowing it to “compete for attractive growth opportunities on a national level”.
The possible tie-up would be the second significant deal involving a New England water utility in the last 12 months: in June, Eversource Energy (ES.N) completed the purchase of Aquarion Water Company for $1.68 billion.
The transaction is due to close by the end of the year, subject to regulatory approvals including those of public utility authorities in Connecticut and Maine.
SJW was advised by JP Morgan and Skadden, Arps, Slate, Meagher & Flom LLP, with Connecticut Water’s respective financial and legal adviser being Wells Fargo and Sullivan & Cromwell.
Reporting by David French; Editing by Susan Thomas