(TEG) Integrys Energy Group to Acquire Fox Energy

Wisconsin Public Service Corporation (“WPS”), a business wing of diversified energy company Integrys Energy Group Inc. (TEG), inked an agreement to acquire Fox Energy Company LLC owned by Connecticut-based General Electric Company (GE) and privately held company, Tyr Energy Inc. for $440 million.

The $440 million buyout consists of the purchase of Fox Energy Center, a 593-megawatt (MW) combined cycle generating unit in Kaukauna, for $390 million and $50 million for early expiration of the existing tolling agreement. Although the facility mainly operates on natural gas, it is also well equipped to run on fuel oil.

Subject to all regulatory approvals and the consents of the lenders providing the necessary finances for the project for the sellers, the deal is expected to close on April 1, 2013.

Integrys’ financial performance has been lackluster in the second quarter 2012 with its stock also performing moderately. However, we believe this high-quality acquisition will propel the company’s prospects. Besides, the addition of this plant will accentuate Integrys’ diversified portfolio which includes coal, natural gas and other renewables. Moreover, this transaction will enhance supply services, improve pricing options and enable the company to effectively manage its energy costs.

Meanwhile, with demand for electricity increasing in the near term, Integrys’ ambitious Prickett Hydroelectric Project in Michigan is expected to fetch lucrative returns for the company. However, unexpected outages and seasonal variations are generic risks which could hinder the smooth execution of these programs.

Integrys Energy Group expects pro forma earnings in 2012 in the range of $3.00–$3.15 per share. The Zacks Consensus Estimates for the third quarter and full year 2012 currently stand at 38 cents per share and $3.09 per share, respectively.

Numbering among its competitors is Wisconsin Energy Corporation (WEC). We Energies, a Wisconsin Energy subsidiary, recently announced its plan to convert the 280 MW, coal fired Valley Power Plant generation unit to natural gas. This move will make the plant more cost-effective and reduce the carbon footprint.

Based in Illinois, Chicago, Integrys Energy engages in natural gas and electric utility operations, and non-regulated energy operations in the United States and Canada. With market capitalization of $4.26 billion, the company has 4,619 employees.

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