Report
Travis Miller
EUR 850.00 For Business Accounts Only

Morningstar | South Carolina Regulators Bless Dominion-Scana Deal; Shareholders Realize Least-Worst Outcome

We are reaffirming our $56 per share fair value estimate for Scana and our $84 fair value estimate for Dominion Energy after South Carolina regulators approved Dominion's proposed acquisition of Scana and Dominion's proposed nuclear project customer rates with no material changes. We are reaffirming our narrow moat and stable moat trend ratings for Scana and our wide moat and stable moat trend ratings for Dominion.

Our fair value estimates now reflect certainty that the deal as proposed will close at Dominion's 0.669 share exchange ratio. We previously assumed a 75% probability that the deal would receive regulatory approval. We expect the South Carolina Public Service Commission will issue a written order next week and the acquisition will close shortly thereafter. Although there could be appeals, we don't expect them to affect the deal closing.

For Scana shareholders, we always considered Dominion's offer the least-worst outcome following Scana's decision in mid-2017 to abandon construction of its new nuclear plant. If regulators rejected the deal, we believed Scana shareholders would be faced with substantial regulatory, legal, and financial uncertainty for many years. Financial distress, including bankruptcy, was a real possibility.

Scana shareholders now will benefit from annualized dividend payments that will go from $0.49 per share to a merger-equivalent $2.46 per share in the first quarter; ownership stakes in the only U.S. utility with a wide moat rating; and similar valuation upside. Scana's stock closed near $51 per share following the regulatory approval, up from as low as $34 per share in mid-September.

For Dominion, integrating Scana gives us greater confidence that the company can meet management's 6%-8% earnings growth target through 2020. Our EPS estimates for Dominion assume modest earnings accretion from the merger and almost 7% average annual EPS growth through 2022.
Underlying
SCANA Corporation

SCANA is a holding company. Through its regulated subsidiaries, the company is engaged in the generation, transmission, distribution and sale of electricity in South Carolina and in the purchase, transmission and sale of natural gas in North Carolina and South Carolina. Through its non-regulated subsidiary, the company markets natural gas to retail customers in Georgia and to wholesale customers in the southeast. In addition, the company's subsidiary, SCANA Services, Inc. provides primarily administrative and management services to the company's other subsidiaries.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Travis Miller

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