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Financial Times / Biz - Money

Scana accepts $14.6bn bid after nuclear project failure

Scana, the South Carolina utility that last year abandoned its plan to build two of the first new commercial nuclear reactors in the US for 40 years, has accepted an all-share takeover offer from Dominion Energy valued at $14.6bn including debt.

The deal, which is dependent on regulators approving Dominion’s plan to manage the remaining costs from the failed reactor project, comes after Scana was laid low by its ambitious attempt to expand its nuclear generation capacity.

Thomas Farrell, Dominion’s chief executive, said he expected South Carolina’s future increases in power demand to be met by gas-fired plants and renewable energy.

Virginia-based Dominion, one of the largest US utility groups with a market capitalisation of about $50bn, has agreed to pay shares worth about $7.9bn for Scana’s equity, and is also taking on about $6.7bn in net debt. Scana’s shareholders will own about 13 per cent of the combined company.

The offer terms are 0.669 Dominion shares, valued at $55.35, for every Scana share, representing a 42 per cent premium to the closing price on Tuesday of $38.87. Scana shares had fallen by 50 per cent over the previous 12 months.

Last July Scana announced that it would stop construction of two new Westinghouse reactors at its 55 per cent owned VC Summer plant, after working on the project for nine years. The decision followed long delays and large cost overruns at the development, which along with problems at two other new reactors under construction in Georgia forced Westinghouse to seek Chapter 11 bankruptcy protection last March.

Dominion said the takeover deal included a plan for an agreement with South Carolina’s regulators over the remaining costs from the nuclear project. It also has a break clause that will allow it to walk away if regulators or politicians impose any conditions that make the tie-up less attractive.

Mr Farrell said: “We believe it is in the best interests of all parties to reach an agreement on this critical issue. Having certainty on this issue can act as a catalyst for economic development.”

Dominion’s plan includes a $1.3bn cash payment to Scana customers, worth about $1,000 per household, and a 5 per cent reduction in rates, in part reflecting savings expected from the corporate tax rate cut signed into law just before Christmas. It would also write off more than $1.7bn in assets at the nuclear project.

To replace some of the generation capacity that will be lost by not completing the new reactors, Dominion plans to continue with Scana’s deal to buy an existing gas-fired power plant for $180m. The capital costs of the investment in the new reactors, in terms of dollars per megawatt of capacity, would have been more than 30 times as expensive as the gas-fired plant.

Dominion’s offer continues an active period for merger and acquisition activity in the US utility sector, which hit a record in 2017, with about $99bn worth of deals announced, according to S&P Global. Listed companies have been seeking growth by acquiring more regulated assets with reliable earnings.

Mr Farrell said Scana was a natural fit for Dominion, which already has gas pipelines in the region and operations in neighbouring North Carolina, but added that he was not banking on significant synergies from the deal. If the takeover is completed, Dominion would operate in 18 states and have about 6.5m regulated customer accounts, up from 4.9m today.