By Supriya Kurane and Jose Elías Rodríguez
(Reuters) - Spanish utility Iberdrola SA (MC:IBE) will buy UIL Holdings Corp (N:UIL) for about $3 billion to create a new listed power and gas company and expand in the United States, where it hopes to offset falling profits at home.
A world leader in wind turbines, Iberdrola joins other European companies seeking to grow via acquisitions outside sluggish domestic markets. Last year, German engineer Siemens (DE:SIEGn) agreed to buy U.S. turbine maker Dresser-Rand (N:DRC).
Iberdrola's earnings have been hit hard by Europe's economic crisis, as well as by energy reforms in Spain, where new power generation taxes and renewable cutbacks dented profits.
As a result, Chairman Ignacio Sanchez Galan has vowed to slash domestic investments and expand abroad, especially in the United States and Mexico. The company already owns Scottish Power and U.S. Energy East, bought in 2006 and 2007, before Spain's financial crisis.
JP Morgan analysts said the agreed deal, which values UIL at around 10 times forecast earnings before interest, tax, depreciation and amortization, was not cheap, but that UIL would contribute valuable growth projects and potential synergies. They have an "overweight" rating on Iberdrola's shares.
Iberdrola will combine its U.S. unit with UIL and list the new company on a U.S. exchange. The companies did not say on which exchange it would be listed.
The Spanish firm said UIL shareholders would receive one share in the new company for each share they own and an additional cash payment of $10.50 per share, or $597 million.
The proposed deal implies a total value of $52.75 per share, including the cash component, representing a 25 percent premium to UIL's closing price on Feb. 25.
Iberdrola also said the deal, which is expected to boost earnings per share and cash flow, would have a limited impact on solvency and would not require a capital increase to be funded.
Sources had told Reuters last year the group would likely fund any purchase by selling assets.
The new company will serve 3.1 million electric and gas customers across New York, Connecticut, Maine and Massachusetts and would invest $6.9 billion in electric and gas infrastructure over the next five years, the companies said.
UIL Chief Executive James Torgerson will be the new company's CEO. Iberdrola and UIL will continue to have offices in New Haven, Connecticut, Massachusetts, Maine and New York.
The deal, unanimously approved by both companies' boards, is expected to close by the end of 2015.
(Adds dropped word Siemens in paragraph two)