California Water (CWT) Makes Offer To SJW Group Shareholders

California Water Service Group (NYSE:CWT) announced that the company has commenced the procedure of tender offer for the acquisition of SJW Group (NYSE:SJW) . The offer entails the company to acquire all the outstanding shares of SJW Group for an all-in-cash price of $68.25 per share, at a 6.1% premium from the price on the date of offer.

The purchase price offered to SJW Group’s shareholders represents a 30% premium and exceeds the all-time high of its closing share price when California Water Service made the buyout proposal on Apr 4, 2018. The tender offer is valid till 5 p.m. New York City Time on Aug 3, 2018. However, if required, the company can extend the expiration timing of the tender offer.

As of Apr 13, 2018, the company had already made an acquisition offer to the board members of SJW Group. However, due to the board’s refusal to the proposed offer, the company sought a direct approach to the stakeholders for an immediate solution.

Since the SJW Group is already engaged in an ongoing deal with Connecticut Water Service, Inc. (NASDAQ:CTWS) for a merger plan, it turned down the acquisition proposal made by California Water Service. In the light of the same, the latter made a direct tender offer to the stakeholders of the former for going ahead with its acquisition strategy.

Acquisition Synergy

The acquisition of SJW Group is anticipated to be a great strategic move by California Water Service, which would enable the combined entity of its subsidiary Cal Water with SJW Group serving in the Californian State, to emerge as the third largest publicly traded water utility company in the nation.

Serving the same territory allows the acquirer to integrate its operation and processes without any time lag or long-term integration procedures as well as risk. Since California Water Service is already located in the same territory of the company to be merged with, it would be easy to operate and run its business efficiently without much need for crucial transitions in the business processes.

The company expects this acquisition to be immediately accretive to its earnings. Synergies drawn from this consolidation will assist the company to continue serving its customers more efficiently and this would be possible via greater economies of scale in operation, a strong financial position of the combined company, better access to capital, greater purchasing power and expansion of the company’s customer base.

Acquisition & Merger in Water Space

Consolidation is the need of the hour in the fragmented U.S. water utility space. Water Utility operation is highly fragmented in the United States and there are a very small number of operators serving only a few hundred customers. It is easier for large companies to make arrangement for funds to carry out these major overhauls. Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative for the industry at large.

Consolidation would therefore drive the necessary infrastructure overhauls that have become imperative to the industry at large. One water utility, American Water Works (NYSE:AWK) , continues to widen its market footprint through strategic acquisitions. During the first four months of 2018, the company added 3,689 customers through five completed acquisitions and nearly 1,500 via organic initiatives. The company is already in discussion to take over 15 more companies, which will add another 47,186 customers.

Price Movement

Over the past year, shares of California Water Service have gained 5.7% against its industry’s decline of 3.1%.

Zacks Rank

California Water Service currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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