Chesapeake Utilities Corporation entered into a transformative agreement to acquire Florida City Gas from NextEra Energy, Inc. for $923 million in cash. The deal means Chesapeake’s Florida businesses will account for a majority of the company’s revenue.
Upon closing, expected to occur by the end of the fourth quarter, FCG, which operates in eastern Florida, will become a wholly-owned subsidiary of Chesapeake Utilities. Dover-based Chesapeake extended its earnings guidance through 2028 to reflect the increased scale and investment opportunities related to the deal, with a forecast of earnings per share growth rate of about 8% through 2028.
FCG serves approximately 120,000 residential and commercial natural gas customers across eight counties in Florida, including Miami-Dade, Broward, Brevard, Palm Beach, Hendry, Martin, St. Lucie, and Indian River. Its natural gas system includes about 3,800 miles of distribution main and 80 miles of transmission pipe.
“This acquisition will more than double our natural gas business in Florida, one of the fastest-growing states in the nation. For several years, gas distribution customer growth in Florida has significantly exceeded national averages. Demand for natural gas continues to increase as Florida consumers seek reliable, domestic, and affordable energy for their homes and businesses,” said Jeff Householder, CEO of Chesapeake Utilities. Householder formerly headed Florida operations before taking the CEO’s post. “We have generated meaningful earnings growth by acquiring businesses in states where we already operate and subsequently developing and executing additional growth opportunities. We see similar opportunities with FCG, and believe we are well-positioned to capture additional growth, including gas distribution expansion to serve new residential development, as well as infrastructure investments across our other platforms, such as gas transmission. We expect these opportunities, which are a large driver of our increased capital investment plan, to enable us to continue to pursue long-term upper quartile earnings growth.”
“Chesapeake Utilities has a proven track record of deploying its regulatory, operations, supply and business development expertise to drive transformative growth in Florida, as exemplified by our acquisition of Florida Public Utilities in 2009. We are taking the same disciplined approach with this transaction, which is directly aligned with our strategic and financial acquisition criteria, and we anticipate a similar success story with FCG,” said Beth Cooper, executive vice president, and chief financial officer of Chesapeake Utilities. “We intend to finance the transaction through a combination of long-term debt and equity, ensuring we maintain a strong balance sheet while supporting our long-term earnings and dividend growth.”
Highlights reported by the company
Post-acquisition, Chesapeake Utilities’ footprint will expand significantly. Following the acquisition, the company’s Florida portfolio is expected to make up about 60% of its total utility net plant and operating income versus 45% for the standalone business at the end of 2022.
This acquisition provides expansion opportunities into unserved and underserved communities throughout a widened service territory. Additionally, the transaction introduces growth opportunities across its businesses, from organic growth of the regulated LDC assets to new opportunities for the company’s natural gas pipeline and virtual pipeline businesses to other sustainable investments such as renewable natural gas, alternative fueling stations, and fleet conversions.
As a result of this transaction, the Company’s regulated utility customers and net plant will increase by 50% and 30%, respectively, bringing enhanced scale and efficiency. This acquisition is expected to benefit from Chesapeake Utilities’ expertise in all facets of natural gas operations, regulatory, supply, business development, and project execution. The company’s expertise in navigating Florida’s regulatory and political environment and expected efficiencies related to the complementary nature of the combined operations are pluses.
The transaction supports and extends the company’s guidance and provides approximately $500 million in investment opportunities associated with Florida City over the next five years. The financing plan includes a balanced mix of equity and long-term debt, which supports long-term dividend growth and maintains the company’s balance sheet.
Chesapeake Utilities has had a natural gas distribution presence in Florida for 40 years, building on that initial presence to include multiple business entities. The acquisition more than doubles the company’s Florida natural gas operations, expanding Chesapeake Utilities’ service territory coverage to include five additional counties in Florida and increasing its presence in five of the top 10 most populous counties in the state.
With the addition of FCG, Chesapeake Utilities’ overall natural gas distribution presence in Florida will include an approved regulated rate base of $941 million, serving more than 211,000 customers through nearly 7,000 miles of natural gas distribution company pipeline.
After closing, the company’s consolidated Florida operations are expected to contribute approximately 60% of Chesapeake Utilities’ operating income, total utility net plant and five-year capital investment plan.
The transaction is projected to increase Chesapeake Utilities’ regulated natural gas utility customers and net plant by 50% and 30%, respectively, with the regulated business mix reaching 87% (up from 81%).
Chesapeake Utilities is expected to exceed its current capital expenditure guidance ($900 million to $1.1 billion) for the five years ended 2025. The company is excited to introduce its new guidance: capital expenditure guidance in the range of $1.5 billion to $1.8 billion for the five years ended 2028 and earnings per share in the range of $7.75 to $8.00 per share for 2028.