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Wall Street stands firm on Dominion closing SCANA deal by year-end


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Wall Street stands firm on Dominion closing SCANA deal by year-end

With South Carolina regulators set to release their written order approving Dominion Energy Inc.'s acquisition of SCANA Corp. within a matter of days, Wall Street maintains that the controversial transaction will close by year-end.

The Public Service Commission of South Carolina, during a Dec. 14 meeting interrupted by protesters, voted unanimously to approve the more than $14 billion merger, subject to certain conditions.

The Williams Capital Group, which for months expressed skepticism that the deal would be approved in South Carolina, raised its rating on SCANA's stock to "hold" from "sell" Nov. 26 following the announcement of a $2 billion settlement agreement to resolve a ratepayer lawsuit over cost recovery for the abandoned V.C. Summer nuclear expansion project. Under the commission's directive, Dominion will lower nuclear cost recovery to about $2.77 billion from $3.33 billion over a 20-year amortization period.

"The SCANA debacle provides another keen and valuable reminder that utility investors can take no important regulatory or political outcome for granted," Williams Capital Group analyst Christopher Ellinghaus wrote in a Dec. 17 research report.

"Ultimately, South Carolina politics chose the less complicated road. Whether it was ultimately the best outcome for [ratepayers] or shareholders in the long-run will be decided by history," the analyst wrote. "Perhaps the outcome was pre-ordained a year ago and all of the arguments and jawboning for even lower customer rates and imprudence throughout the legislative and regulatory process were merely for show."

Ellinghaus said Dominion's stock-for-stock acquisition of SCANA and the delisting of SCANA's shares "will likely be concluded shortly."

"The ultimate outcome for SCANA shareholders from the Dominion share exchange will be determined by a currently very fickle and volatile stock market," the analyst added. SCANA stock closed up more than 6% at $50.98 on Dec. 14 but slid along with a drop in U.S. equities Dec. 17.

Mizuho Securities USA LLC, which has a "buy" rating on SCANA, raised its price target to $51 from $48.50 on Dec. 17 following the deal approval.

"We do not expect the final order to contain any provisions that would be unacceptable to Dominion and cause the company to walk-away," Mizuho analyst Paul Fremont wrote. "Therefore, we remain optimistic Dominion will be successful in closing the deal."

Dominion twice increased its offer for SCANA amid contentious regulatory proceedings. Regulators ultimately decided to accept Dominion's latest pitch, which provides "a total of $2.039 billion in refunds" over a 20-year period and a rate reduction of approximately 15% by eliminating nuclear cost recovery after March 12, 2015.

While several South Carolina regulators admitted they were conflicted about the decision, they all agreed that approving Dominion's bid for SCANA was necessary to provide "certainty and finality" for the embattled utility, its ratepayers and the state.

"It is my wish that more could be done," said Vice Chairman Elliott Elam, who made the motion to approve the deal. "However, this commission has to utilize the record in this case to provide the best remedy, or the least-worst remedy, that it can under the circumstances."