Zacks_Analysts' Blog : FirstEnergy Clinches Allegheny Buy - Analyst Blog

FirstEnergy Corp. (FE) on Friday concluded its long-awaited merger deal with Allegheny Energy Inc. (AYE), thus creating one of the nation’s largest energy companies. The completion of the $4.7 billion merger, which was entered on February 11, 2010, marks the beginning of the companies’ combined operations. 

The newly formed energy behemoth will consist of 10 regulated electric distribution companies serving 6.1 million customers from Ohio to New Jersey. Operating across seven states the company’s net annual revenue will total about $16 billion with profit nearing $1.4 billion.

Following the completion of the merger, FirstEnergy announced the reshuffling of some regional headquarters and revival of old names for some of its subsidiaries to underscore the company's focus on regional operations. 

The reshuffled regional headquarters include those for Maryland and West Virginia utility operations and West Penn Power utility operations, the headquarters of which have moved to Washington County, Maryland; Fairmont, West Virginia; and Greensburg, Pennsylvania, respectively.

In addition, the company plans to reintroduce the utility operating names – Mon Power, Potomac Edison and West Penn Power – to Allegheny Power customers. 

The merged company, with a more diversified energy delivery business and stronger generation portfolio, will enhance customer service, reliability and operational flexibility. Moreover, a strong balance sheet, solid electric distribution operations, significant generating capacity and over 20,000 miles of high-voltage transmission lines connecting the Midwest and the Mid-Atlantic provide a springboard for future growth.

Based in Akron, Ohio, FirstEnergy is involved in the generation, transmission and distribution of electricity, as well as energy management and other energy-related services. Prior to the merger, it operated primarily in Ohio, Pennsylvania and New Jersey. Greensburg, Pennsylvania-based Allegheny Energy Inc. owned regulated utilities and power plants mostly in West Virginia, Maryland, Virginia and Pennsylvania.

Over the past one year, the utility industry in the U.S. has seen companies consolidating their operations in order to nullify the effects of costly environmental rules being enforced. Another factor driving consolidation is low power prices, which are hurting profits.

Some of the consolidation deals entered in the past year include, PPL Corporation’s (PPL) purchase of Louisville Gas and Electric and Kentucky Utilities from Germany's E.On and Northeast Utilities’ (NU) agreement to buy NSTAR (NST).

In January 2011, the industry witnessed another major merger deal with Duke Energy Corporation (DUK) agreeing to buy rival Progress Energy Inc. (PGN) for $13.7 billion to become the nation's largest utility.