Shareholders approve merger between American Water and Essential Utilities, operating in Pennsylvania and New Jersey.
In a significant move towards consolidation in the utility sector, shareholders of Camden-based American Water Works and Bryn Mawr-based Essential Utilities have overwhelmingly approved a merger aimed at creating a new entity with nearly billion in annual water and sewer revenues. The merger votes, which took place on Tuesday, saw over 99% of American Water’s shareholders and approximately 95% of Essential Utilities’ shareholders support the decision, as reported to the Securities and Exchange Commission.
The successful shareholder votes mark a pivotal step in a prolonged rivalry that has persisted for more than a century. Despite gaining shareholder approval, the merger is still subject to regulatory scrutiny and must receive the green light from state public utility commissions in both Pennsylvania and New Jersey before proceeding.
The combined power of these two companies is expected to significantly enhance their market presence, particularly in Pennsylvania and New Jersey, where their service areas overlap. Aqua, a subsidiary of Essential Utilities, provides water services to several suburban regions including West Chester and Delaware County, while American Water serves major locales such as Abington and King of Prussia. Additionally, New Jersey American Water and Aqua New Jersey offer services across various towns in the region.
American Water, already the largest private operator of water systems in the United States, aims to bolster its competitive position against other large utility firms such as Florida-based NextEra Water Group and France-based Veolia’s U.S. operations. As part of the merger agreement, the integration of management structures is anticipated to streamline operations and potentially reduce costs, leading to increased profitability and shareholder value.
In related discussions, a compensation package for Essential’s outgoing CEO Christopher H. Franklin received some scrutiny, with 85% shareholder approval. The deal includes substantial severance compensation, stock grants, and benefits aimed at supporting Franklin’s transition.
The newly formed company will wield substantial influence, approaching the size of many leading natural-gas firms listed in utility stock indexes. With both firms working to appeal to investors, the merger is seen as a strategic move to enhance visibility and operational efficacy.
Both companies are concurrently navigating separate regulatory requests for rate increases, with intentions to upgrade aging infrastructure. American Water has filed for an average rate hike that would increase monthly costs for its New Jersey customer base, highlighting ongoing challenges in maintaining service levels amid infrastructure demands.
Critics of the merger have emerged, urging Essential to consider alternative bidders to maximize shareholder returns. Concerns have grew regarding the volatility of stock prices in the wake of the merger announcement, as investors typically adjust their positions after deals are finalized.
The essential outcome of this merger, along with the regulatory approvals it still requires, will be keenly monitored by stakeholders in both the utility industry and the broader investing community. With only about one in six Americans served by private water companies, this merger could serve to reshape the landscape of water utility management amidst ongoing public debates about privatization and service quality.
Details of the merger approval and future plans will be elaborated by both companies later this week, setting the stage for what could be transformative changes in the region’s utility infrastructure landscape.
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