TECO Energy announced plans Tuesday to purchase a New Mexico natural gas company in a deal valued at $950 million, the largest acquisition in the utility's history.
The purchase of New Mexico Gas Co., would expand TECO's residential customer base outside of Florida for the first time. The number of TECO customers would increase 50 percent from about 1 million to 1.5 million.
The transaction is expected to close in the first quarter of 2014 and is subject to state and federal regulatory approvals.
John Ramil, TECO president and chief executive officer, said the deal helps with the core mission of reaching more customers.
"This acquisition is a significant step in achieving growth for TECO Energy," Ramil said. "We expect it to provide opportunities for future growth in an attractive Sun Belt location."
TECO said it would pay for the deal with cash and the sale of stock. The deal includes TECO taking on $200 million in New Mexico Gas' debt.
Travis Miller, director of utilities research at Morningstar Inc., said strategically TECO's decision makes sense, but he questioned the purchase price.
"We think the deal looks pretty pricey, but we like the idea that TECO is looking elsewhere for some incremental growth opportunities," Miller said. "We think the Tampa area growth opportunities are pretty saturated."
After Tuesday's announcement, TECO Energy stock fell more than 50 cents to $17.75, off from its 52-week high of $19.22. TECO, the state's third largest investor-owned utility behind Florida Power & Light and Duke Energy Florida, is valued at $3.86 billion.
TECO is the parent company of Tampa Electric, which provides electricity and also operates a gas division called Peoples Gas System. Tampa Electric employs 4,000 workers in the state, with about 2,500 of those in the Tampa Bay area.
New Mexico Gas, based in Albuquerque, has about 740 employees and reaches about 60 percent of the state's population with customers in 23 of New Mexico's 33 counties.
TECO is acquiring New Mexico Gas from Continental Energy Systems LLC., a New York-based private holding company, said Teala Kail, a spokeswoman for the New Mexico company.
Kail referred questions about the acquisition to TECO Energy.
Canadian-based AltaGas bought Continental's other two utilities — Semco Gas in Michigan and ENSTAR Gas in Alaska — last year for $1.135 billion. Those two companies served a combined 418,000 customers.
TECO's move to buy New Mexico Gas would yield more customers for less money than the AltaGas deal.
Last fall, TECO sold its investment in international power plant operations in Guatemala. TECO also operates a coal production division in Kentucky and Virginia, but does not have residential utility customers in those states
Cherie Jacobs, a TECO spokeswoman, said the company is continually seeking ways to grow its customer base, first locally and then elsewhere. She said for now, the utility will focus on closing the acquisition of New Mexico Gas rather than the pursuit of other businesses.
Federal and New Mexico regulators must approve the deal. Florida does not regulate utility mergers, so the utility will not need approval from the state Public Service Commission.
Ramil said he sees New Mexico Gas as a well-run business with growth potential that has not been fully realized.
"We are experienced in acquiring and integrating regulated gas distribution operations," Ramil said. "We acquired Peoples Gas in 1997, and grew that business in part by acquiring and integrating other small gas . . . and related businesses such as West Florida Gas and Griffis Gas. Most of the people involved in those activities, at all levels, are part of the team today."
Ivan Penn can be reached at email@example.com or (727) 892-2332.