Aqua America's (WTR) CEO Chris Franklin on Acquisition of Peoples Conference - Transcript

About: Aqua America, Inc. (WTR)
by: SA Transcripts

Aqua America, Inc. (NYSE:WTR) Aqua America Acquisition of Peoples Conference October 23, 2018 8:30 AM ET


Brian Dingerdissen – Vice President-Investor Relations

Chris Franklin – Chairman, Chief Executive Officer and President

Matt Rhodes – Executive Vice President-Strategy and Corporate Development

Morgan O’Brien – Chief Executive Officer, Peoples

Dan Schuller – Executive Vice President and Chief Financial Officer


Durgesh Chopra – Evercore

Ben Kallo – Baird

Michael Gaugler – Janney Montgomery Scott

Ryan Connors – Boenning & Scattergood


Good day and welcome to the Aqua America Acquisition of Peoples Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Brian Dingerdissen. Please go ahead, sir.

Brian Dingerdissen

Thank you, Ian. Good morning and welcome to today’s conference call announcing Aqua America’s acquisition of Peoples. A live webcast of today’s presentation is available on our website along with the press release and other materials from today’s announcement. This call will be limited to 1 hour.

As a reminder, this presentation contains in addition to historical information, forward-looking statements including statements with respect to anticipated impact of the transaction on the company’s earnings, anticipated growth rates, the expected timing of closing of the transaction, expectations regarding liquidity and access to capital of the combined company, the proposed financing structure of the transaction and our earnings expectations for 2018. Based on assumptions made by management regarding future circumstances over which the company may have little or no control, that involve risks, uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements.

These factors include, among others, the following: our ability to obtain necessary regulatory approvals on a timely basis; our ability to integrate the acquired business; our ability to achieve projected synergies and grow the combined business; general economic and business conditions; weather conditions affecting the customers’ water usage or the company’s cost of operations; costs arising from changes in regulations; regulatory treatment of rate increase requests; availability and cost of capital. The success of growth initiatives, including pending acquisitions; the ability to generate earnings from capital investment; and other factors discussed in our Form 10-K for the year ended December 31, 2017, which is on file with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

With that I’d like to turn it over to Aqua’s Chairman and Chief Executive and President, Chris Franklin.

Chris Franklin

Thank you, Brian. And thank you all for joining us this morning for our exciting news. As I’m sure you’ve probably read the press release by now. We announced that Aqua America will acquire Peoples, Peoples is a leading Pittsburgh-based gas local distribution company. We are purchasing the company from California-based SteelRiver Infrastructure fund North America. This was an all cash transaction that reflects an enterprise value of $4.275 billion, and includes the assumption of approximately $1.3 billion of debt. The transaction will create a leading Pennsylvania-based water and natural gas infrastructure company.

Now, for those of you who follow Aqua, you know that for some time we’ve said, that if we found the right strategic acquisition with the right management team and at the right price, we would consider purchasing the company. And well, all of those factors have come together for the purchase of Peoples. I’ve known Morgan O’Brien, the CEO of Peoples, and have admired what he’s done with the company for some time. We also believe that Morgan’s team is strong and will provide a strong additional platform to our already strong water platform.

Now, let’s not make any mistake here that we are not moving away from water as a matter of fact, quite the contrary. Our balance sheet will remain strong even after this acquisition is complete and it will allow us to continue doing the municipal water deals and gathering new customers in the gas business moving forward. Aqua and Peoples are a strong fit in terms of our strategy, our culture, and our mission. We are both regulated utility companies that share a core mission of providing essential utility services to our customers. We also share several common core competencies, particularly in pipe distribution and infrastructure replacement, regulatory credibility, and also in operational excellence. Together, we’re uniquely positioned to make a long-term positive contribution to our nation’s infrastructure issues.

Now, before we continue, let me introduce the other members of the team who are with us today. First, joining us from Peoples is, Morgan O’Brien, from Pittsburgh. He’s the President and CEO of the company. In addition to Morgan, we have on the Aqua side, Matt Rhodes, Executive Vice President of Strategy and Corporate Development; and Dan Schuller, our Executive Vice President and Chief Financial Officer. And you already heard from Brian, who’s our Vice President and Chief of Staff – Vice President of Investor Relations and Chief of Staff.

Now turning to Slide 4. Let’s just take a quick look at the agenda for our call. I’ll start with a brief summary of the transaction. Then Matt will discuss the strategic rationale for the transaction and will take you through the reasons why these two companies are a strong fit. And then I’ll provide a quick overview of Aqua. From there, I’ll hand it over to Morgan and he’ll do a quick detailed description of Peoples for those of you who may not be as familiar with his company. And then Dan Schuller will talk about the profile of the resulting company and key milestones including financing of the transaction. And I’ll conclude with some key takeaways on the presentation and we’ll open it up for questions.

So let’s get going. We are very proud to be acquiring Peoples, which has a strong track record of growth and service to its customers. The combined company will have more than 1.7 million regulated customers and is projected to have 7.2 billion in rate base in 2019. It will be more than 99% regulated, so this is a regulated utility. As I’ve said, the all cash transaction reflects an enterprise value of $4.275 billion and includes the assumption of debt of $1.3 million, billion I’m sorry. We expect to finance this deal with a mix of debt and equity and Dan will get into the details of that in just a few moments.

Together the combination of these two companies will create a unique company in the market. Our combined company will be the only publicly traded water and gas platform of scale in the United States. In fact, the company will be almost entirely regulated and 70% of the rate base will be water, 30% will be gas. Further, 77% of the company’s rate base will be located in the constructive regulatory environment of Pennsylvania. Post-closing, we’ll rename the holding company, which will continue to trade on the New York Stock Exchange under a new name. We expect that both Aqua and Peoples will retain their individual brands and both of their headquarters locations.

The combined company will operate regulate utilities over a 10 state footprint and will serve roughly 5 million Americans. The transaction will be accretive to earnings in the first full year and in the long-term as well with rate base growing about 7% in water between 2019 and 2021 and 8% to 10% in gas, again between 2019 and 2021, strong growth for both companies. For customers of Aqua and Peoples and for the employees and the communities where the businesses operate should expect the same level of service and reliability will continue. The transaction is expected to be seamless for both companies’ customers, and in fact rates will not change as a result of this transaction. And the service will continue to be provided by the same employees that the customers know well at Aqua and Peoples.

Now for shareholders, the increased scale, greater liquidity and enhanced earnings growth potential will ensure the resulting company continues Aqua’s strong tradition of rewarding shareholders with stable and growing dividends and earnings. We expect to close the transaction in mid-2019 pending approvals from regulatory bodies.

So with that, I’m going to ask Matt Rhodes to discuss our strategic rationale for the deal. As you know, Matt joined us earlier this year after a fairly long career at Goldman Sachs. Matt clearly hit the ground running and he provided excellent leadership during this transition process. Matt?

Matt Rhodes

Thanks Chris. Let’s take a look at Slide 6. As many of you know, Aqua developed a three-pronged growth strategy when Chris became CEO, pursuing opportunities in municipal water and wastewater, strategic acquisitions in the regulated utility sector and market-based activities closely related to our core regulated operations. As we have articulated previously these three prongs correspond directly with our core competencies, which are infrastructure investment, regulatory affairs, and operational excellence.

Today’s announcement is directly aligned with our strategy and fits each of these core competencies extremely well. This is a significant deal that gives us a broader and more diverse platform from which to grow. It will add 740,000 customers and further expand our presence in Pennsylvania.

We have a proven track record of successfully integrating acquisitions both large and small. In fact, this is our third transformative strategic acquisition. In 1999, we acquired Consumers Water, which is our first acquisition outside of Pennsylvania, and then in 2003, we bought AquaSource, which added operations in several southern states. We have also completed several municipal acquisitions recently and just reached over 1 million customer connections. Today’s announcement of our combination with Peoples is the next step in our exciting future.

As Chris described earlier, we are very excited about this combination because it allows us to continue our strategy and mission as a provider of essential utilities, but with a larger, more diverse footprint and a new natural gas platform that complements our existing regulated profile. By acquiring Peoples, we will be uniquely positioned to have a powerful impact on improving the nation’s water and natural gas infrastructure. Peoples have the strong fit in terms of culture and strategy, but the transaction will also have a positive impact on our bottom line over the next several years.

With a larger stable and fast growing set of businesses, we will achieve EPS accretion in the first year post closing and have improved the earnings and rate base growth and the transaction will support our continued long term dividend growth. Additionally, we will be able to consider opportunities in each of our existing and new states to grow our water, wastewater and gas operations both organically and through acquisitions. Pennsylvania represents a significant portion of our customers and our earnings.

The new company will continue being concentrated in Pennsylvania, which we view as a positive given – the Pennsylvania continues to be a premier regulatory environment in the country, because both companies already have strong regulatory reputations, relationships, and expertise. We believe that the regulatory transition will be smooth. We will need regulatory approval in Kentucky, Pennsylvania, and West Virginia as part of the transaction.

Chris mentioned this is a transaction focused on growth, not cost cutting, and we do not expect to realize material synergies from the acquisition. It is important to know and how much Aqua and Peoples share in their expertise related to regulatory affairs, operational excellence in capital deployment, especially distribution pipe replacement in infrastructure improvement. Both companies have strong rate base growth and our leaders in their respective industries.

While this transaction is significant and will meaningfully increase our scale, trading liquidity, and provide enhanced access to capital, the combined companies utility business mix will remain focused on water, pro forma, we will be approximately 70% water and 30% natural gas.

Lastly, both companies share a deep sense of civic commitment to communities they serve and to improving the nation’s infrastructure.

And now, I’ll pass the call back to Chris.

Chris Franklin

Okay, thanks Matt. Let’s take a look at Slide number 7. I realized that there are maybe some folks on the call, who are not as familiar with Aqua. So let’s just give you a quick overview of the company. We are the second largest water and wastewater utility in the country founded over 130 years ago, right in South Eastern Pennsylvania. And the Company’s grown to serve now more than 1 million customer connections across our eight state footprint.

Aqua has a reputation for financial strength, operational efficiency and regulatory credibility. Companies has over 12,800 miles of pipe and there’s more than $4 billion in rate base. By 2019 when the deal closes, we project having approximately $5 billion in wastewater and water rate base. The company employs about 1,600 people and we have a proven growth strategy and have increasingly provided solutions for municipalities with deteriorating water infrastructure.

For several years now, we’ve been installing nearly 150 miles of water main a year and have developed quite an expertise in work that traverses both heavily populated suburban areas and more rural terrain. Much of this pipe is recovered through regulatory surcharges and mechanisms such as the DSIC affectionately called the DISC in Pennsylvania. As a result of the main replacement program, we’ve seen increased efficiencies and strong reductions and what we call it, unaccounted for water from things like main breaks.

Peoples is doing very similar work with their main replacement effort. This is just one of the reasons that these two companies fit well together. As I mentioned, Morgan O’Brien is joining us from his headquarters in Pittsburgh today and he’s going to provide a brief overview of the Peoples Company. Morgan?

Morgan O’Brien

Thanks Chris. Good morning to everyone. First, I’m extremely excited about joining you today and even more excited about this transaction. For those who don’t know me, I’ve been President and CEO of Peoples since 2010. I’m a Pittsburgh native, born and raised there. Before coming to Peoples, I served as the CEO of Duquesne Light company, the local electric utility serving Pittsburgh.

As you can see on Slide 8, Peoples is a gas distribution utility company owned by SteelRiver Infrastructure Fund. Peoples is headquartered in Pittsburgh, Pennsylvania, was about 1,500 employees. The company is the largest gas provider in Pennsylvania and provides gas to over 740,000 customers across service territories in Pennsylvania, Kentucky, and West Virginia. We have successfully grown the business over the last eight years and see the opportunity to continue to grow the business going forward.

Like Aqua, Peoples history goes back over 130 years. Over the last several years, the Company has experienced strong growth through a series of acquisitions, Peoples as acquired Phillips Gas & Oil Company in 2011, Equitable Gas in 2013 and Delta Natural Gas in 2017. Throughout this growth, we’ve stayed true to our mission to make customers’ lives better and we’re dedicated to the communities we serve. Over the last several years, Peoples has refocused its business on its core utility segment and completed the three significant acquisitions of natural gas distribution companies or LDC’s that I mentioned a few moments ago.

We’re focused on partnering with our customers and community leaders by growing the economic and environmental benefits of our plentiful natural gas resource through growing use of natural gas through the expansion and growth of our regulated local distribution network. For those less familiar with natural gas industry, the LDC are the part of the natural gas supply chain that’s closest to the customer. We don’t take on commodity price risk or environmental risk of gas production, but instead focus on providing safe and reliable natural gas delivery to customers.

The company also has laid out a plan of investment of approximately $300 million to $350 million in CapEx per year. This was mainly in gas infrastructure improvement. With this plan, Peoples express to have a rate base growth of 8% to 10% annually. Much like Aqua, we have deep roots in the state of Pennsylvania, where we have strong relationships with regulators and have used regulatory mechanisms to ensure timely return of the infrastructure investment.

With our pipeline replacement plans, we’ve invested over $500 million between 2013 and 2017. Kentucky and West Virginia, where we also operate allow us to use similar mechanisms to recover capital between rate cases. Lastly, as I have shared with Chris more times and he wants to hear, if I were going to buy a Natural Gas LDC, I’d buy the one with the lowest cost of natural gas sitting on top of the largest natural gas deposits in the country with an economy that’s growing and prospering from this resource, and that’s exactly what you find with Peoples.

With that, I’ll like to turn it back to Chris.

Chris Franklin

Hey, thanks Morgan, and not only are we excited about this combination, but I’m personally excited to that Morgan will be running the gas platform for the combined company in a fashion that he’s done so well over the years. So again, thanks for being with us today, Morgan.

I’m going to turn the call over now to Dan Schuller. As you’ll recall, Dan Schuller was former Executive Vice President of Strategy And Corporate Development and but he’s now our Chief Financial Officer and he’s going to discuss the profile of the combination and the financials associated. Dan?

Dan Schuller

Thanks, Chris. Chris, Morgan and Matt have spoken about the strategic side of the two companies and I’d like to build on that by laying out a few aspects of the resulting company. As well as our CapEx plans are resulting market position to transaction timeline and our approach to financing.

Slide 9 shows Aqua’s eight state footprint alongside Peoples three state utility presence. Over its eight states, Aqua has 1 million customer connections, while Peoples has over 740,000 customers in its three states. So together we’ll have more than 1.7 million customers. This means that the combined company will provide an essential service to roughly 5 million Americans.

Aqua has projected 2019 rate base of approximately $5 billion compared to $2.2 billion for Peoples resulting in a total projected regulated rate base of $7.2 billion in 2019. I should add it over 77% percent of that rate base is in Pennsylvania.

Next, let’s look at CapEx on Slide 10. Considering our core competencies, two things attracted us to the natural gas utility business. Number one, the need for significant safety and reliability driven infrastructure improvements. Much of this for bare steel and cast iron pipe replacement and two, the fact that a substantial portion of this needed investment is eligible for mechanisms like the DSIC or the DISC as we say in Pennsylvania, which is the mechanism that was obviously pioneered by Aqua back in the 1990’s.

Both Aqua and Peoples have impressive CapEx plans for the next three years with 2019 to 2021 rate base growth of 7% for Aqua and 8% to 10% for Peoples with much of that eligible for DISC or DISC like mechanisms. The middle pie chart shows that nearly 70% of the capital investment in Peoples three year capital plan is eligible for this mechanism. As you can see, following the transaction, over 50% of the combined companies capital will be eligible for efficient DSIC like recovery between rate cases.

Please turn to Slide 11. In addition to CapEx driven growth, the company – the combined company will allow the respective business segments to continue to pursue their standalone growth strategies. For example, the water focused team will continue to pursue municipal water and wastewater transactions, and the natural gas focused team will continue to pursue the 370,000 potential customers in Western Pennsylvania, who currently use propane, electric or oil but could potentially switch to cleaner, safer natural gas.

We’re financing the transaction with a significant equity component in order to maintain strong investment grade credit ratings and provide balance sheet flexibility to continue our municipal acquisition program. Bottom line, as a unique publicly traded regulated utility with scale operations in both water and gas, we will be positioned to provide investors exposure to growing earnings generated from investment in the rehabilitation and expansion of American infrastructure.

Based on the size of the deal, we thought it’d be interesting to show on Slide 12, how the resulting combination will fit in the U.S. publicly traded utility space. Currently Aqua is the second largest investor-owned water utility in the U.S. With the addition of Peoples the enterprise value, the combined company will be approximately $13 billion. This represents a substantial growth in scale that will make us stand out as a leader both among water utilities and natural gas LDC’s. The pro forma company will be similar in size to Atmos and larger than all but two of the standalone water and gas LDC’s. Moreover, we believe that our pro forma business model is the cleaner, greener, diversified utility profile.

Let’s turn to Slide 13 to talk about the key milestones of the transaction. First, prior to signing, we secured committed bridge financing. Next, we’ll need to make the appropriate regulatory filing, complete an equity offering, secure debt financing and then receive the required state PUC approvals. We expect to complete these activities and close the transaction in mid-2019. These dates are not exact or locked in, but this gives you an idea of what you can expect to see regarding the next steps as we work through this transaction process.

Finally, on Slide 14, I’d like to touch on how we will finance the transaction. We plan to use a combination of debt and equity instruments to fund the approximately $3 billion in cash requirements. In order to maintain strong investment grade credit ratings, we’re financing this acquisition with a mixed weighted heavily toward equity. Thus, we expect to issue between $500 million and $800 million in debt and around $2.2 billion to $2.5 billion in equity, likely utilizing convertible equity for some of that in order to access an additional pool of investors. As noted on this slide, we’re evaluating whether to use interest rate swaps to mitigate potential rate increases in the coming months.

With that, I’ll turn the mic back over to Chris.

Chris Franklin

Thanks Dan. Thanks for walking us through the detail. On Slide 15, we thought it would be helpful just to give you a quick snapshot or illustration of what the combined company will look like. We envision that water operations would remain largely as it is today under the brand of Aqua and that Peoples would continue to operate as Peoples both utility will fall under the publicly traded holding company that today we call Aqua America and it will be renamed at a later point where appropriate to both companies.

Now, in concluding our formal remarks, let me just take a moment and talk about how this transaction will benefit our various stakeholders. Our customers can expect the same strong service that they received today and should expect a seamless transition and there should be no impact – there will be no impact to customer rate as a result of the transaction. We continue to improve our infrastructure, which will in turn continue to increase reliability and safety.

And when I spoke with Governor Tom Wolf, this morning in Pennsylvania, he underscored that same priority he has been making pipe continued in a safe fashion. Throughout the transition there should be very little impact on the employees that operate both Aqua and Peoples. And we will remain very committed to safety and operational excellence and training and development. It’s important to mention that we will continue to be engaged in the communities that we serve, supporting community development and the environment. Our large scale investment in infrastructure will also continue to improve the quality of life and contributes to economic prosperity throughout our footprint.

This new combination will offer a unique opportunity for investors with exposure to increase long-term earnings and continued commitment to dividend growth. The transaction will be funded conservatively, as Dan mentioned, primarily with new equity maintaining our strong investment grade credit ratings. Lastly, we see no change to our 2018 guidance absent transaction costs. Today, we went out with an additional year in our rate based guidance. So it’s now 7% for Aqua for 2019 to 2021. This was previously 7% for 2018 through 2020, so we added another year to it.

I want to mention and this was our plan even before that we announced this transaction. But I want to announce that we don’t believe it’s appropriate for us to provide earnings guidance for 2019 because the companies in a current rate case in Pennsylvania, as many of you know in Pennsylvania is roughly 70% of the company. So as the PA rate case closes and the transaction is completed, we will then revert to our current policy of providing earnings guidance going forward.

But I will add that although we won’t provide earnings guidance for 2019, we will continue to provide guidance on things like CapEx, rate base, customer growth and O&M during our normal year and cycle. Finally, I’d like to recognize, although that has gone into making this transaction happen and all of that has gone into making these companies what they are today. It’s hard work of employees at both companies along with their exceptional dedication to our respective missions that has made these two companies great. Together, we are creating a leading utility that will make a difference in improving the infrastructure in our country.

Now I’d like to conclude the formal part of our presentation and open it up for questions. Ian, if you could open the phones for questions, we’d appreciate it.

Question-and-Answer Session


Thank you. [Operator Instructions] And now we’ll take our first question from Durgesh Chopra of Evercore. Please go ahead.

Durgesh Chopra

Hey good morning team. Can you hear me?

Chris Franklin

Good morning, Durgesh. Yes, we can hear you loud and clear.

Durgesh Chopra

Great. Thank you for taking my questions. I have a couple here. Just one, can you give us a sense of at the Peoples company, the Peoples LDC’s what is the level of all priced ROEs there. And then where do earnings stack up historically versus those authorized levels?

Chris Franklin

Allow ROE, Matt?

Matt Rhodes

Yes. So there are a lot ROEs roughly in the low 10% ranges, so call it 10.3%, 10.4% currently on ROE. And I think if you look at actually earned ROE, I’d say it’s roughly in line with those levels.

Durgesh Chopra

Okay, perfect. And then as we think about and I know you’ve been explicit on the earnings guidance, so I get that. But as we think long-term in terms of the earnings growth profile of these businesses, is it fair like, on the water side, obviously the rate base is growing 7%, on the gas side, it looks like higher rate base growth of 8% to 10%. As we think long-term, is it fair to assume that the earnings growth profile is more or less going to mirror the rate base growth profile?

Dan Schuller

Durgesh, it’s Dan. I think on a number of these calls in earnings calls and in meetings we’ve talked about the fact that we would expect earnings growth to lag rate base growth for the water business and that’s specifically because we’ve taken advantage of tax repair. And we’ve been in a situation where we have a very low effective tax rate. And so as that tax rate starts to increase in the coming years, that would cause a disconnect between the rate based growth and the earnings growth.

Durgesh Chopra

There’s a couple of rate cases though it would – it would return to normal.

Chris Franklin

It would start to turn to normal over the next few rate cases. Correct.

Durgesh Chopra

So, after it’s – so basically Pennsylvania, Pennsylvania rate case and then prospectively, it should kind of like the earnings growth profile should tie out to the rate base growth profile. I guess my real question was would that – should we be. When I – when I think about my model, should I be modeling in 8% to 10% earnings growth in the gas business in line with the rate base growth and the reason why I’m asking that question is one of the things that Chris said was that the rates will not change. So, I don’t know if that, that means that there’s, that there’s a freeze or what’s the implication there and how does that, how does that impact the earnings growth profile of the company?

Chris Franklin

Yeah. I would not expect a freeze. Obviously we’re in for an increase in Pennsylvania currently. And – but you, here’s how we think about this. The pipe work, the infrastructure work that has to happen with both of these companies is very important and I believe not only a priority for our customers and our company, but also a priority for regulators and well, we understand that the damage that can be done with an aged watermain certainly aged gas main can cause a damage, significant damage. So we believe that the regulators will continue to be supportive as they have been in the past of the strong capital programs. And obviously, those capital programs can’t continue to be fueled without rate adjustments on a periodic basis.

So, we would not expect to be held out of rates. but most certainly, we’ll have that discussion with the regulators in the coming days.

Durgesh Chopra

Okay. Perfect. Thank you guys.

Chris Franklin

You bet.

Durgesh Chopra

Yep. Thanks.


[Operator Instructions]. We will now take our next question from Ben Kallo of Baird. Please go ahead.

Ben Kallo

Thank you. Good morning and congratulations. Could you talk to us just a little bit about your kind of target leverage, you won’t put on this company going forward and then I’ll have a follow-up please.

Chris Franklin

Yes. I think we’ll – we provided some information here in terms of how we expect to finance the transaction as you can see it’s a financing with approximately 80% of the cash consideration, meaning the equity purchase price being funded with equity or equity linked securities and 20% with debt. So, what we’re trying to do is ensure that we are financing it in a way that we maintain a strong balance sheet, strong credit metrics going forward, have a strong investment grade rating and have that balance sheet flexibility to continue to do municipal transactions and make the appropriate capital investments in the business. So without – I think that probably gives you a pretty good picture of how we’re thinking about the financing and the use of leverage.

Ben Kallo

Got it. Is it – should we assume that for now until the deal closes, the major focus is on getting the deal closed and we should assume other acquisitions out there for now?

Chris Franklin

Yes. I guess the way I think about that is in terms of large strategic transactions, obviously, this is the one for the foreseeable future. but in terms of our regular way municipal acquisition initiative, you could – you should expect to continue to see us work on that initiative across our eight water states and you’ll continue to see some growth by adding customers on the guest side.

Ben Kallo

Got it. Thank you guys.

Chris Franklin

Absolutely. Thanks, Ben.


We will now take our next question from Michael Gaugler from Janney Montgomery Scott. Please go ahead.

Chris Franklin

Good morning, Michael. How are you?

Michael Gaugler

Good sir. Congrats on the deal.

Chris Franklin

Thank you so much.

Michael Gaugler

Just looking at your breakup here, the composition in the company posts the deal, 70% or 30% gas, a lot of your competitors have target ratios, whether they’re a gas utility or the water utility for various aspects, non-reg, reg. So, I’m wondering if you have a long-term target ratio order versus gas or doesn’t it matter?

Chris Franklin

Yes, Michael. We don’t have a long-term target. as Dan said, this is going to be a big one for us and we will take some time to digest this and integrate this so that we can run both the company as efficiently as they’ve run today and do it on a platform that we can grow both utilities from. But as we’ve said, we liked the regulated business. We think that’s where our strength is. not that we wouldn’t ever consider a non- or an unregulated component. but at this point, we’re very focused on the regulated aspect and believe that particularly in today’s environment, these two platforms, I have a lot of opportunity for growth, not only organically, but beyond, in the ways that Dan just described. So, no, we don’t have a long-term mix target, we’re very comfortable at this point with a heavy water and a gas supplemental. but that could shift overtime.

Michael Gaugler

Okay. And then just one follow-up, one thing you didn’t mention in the remarks and the presentation, given the majority of the company’s going to be in Pennsylvania, what kinds of synergies are you seeing in terms of cost savings?

Chris Franklin

Yes, Michael. this is really not a synergy deal. We’re putting a gas co with a water comprising. and so your rationale is really about strategic rationale, and the combination is the difference that we can make in investing in infrastructure and continue to make an increased reliability and safety is really not about synergy. And so when we talked to regulators and investors, we really talk about the ability to grow the two platforms and while running the companies efficiently, may provide us some efficiency benefits. this is not a synergy deal. So there’s just not a lot of there and remember people is not a public company today, so you don’t have the benefit of taking out that public company costs that you might have you ever putting two public companies together. So, it’s just not a synergy deal.

Michael Gaugler

Okay. Thanks everyone.

Chris Franklin

Thank you, Michael. Thanks Michael.


[Operator Instructions]. We’ll now take our next question from Ryan Connors of Boenning & Scattergood. Please go ahead.

Ryan Connors

Good morning. Congratulations on the deal.

Chris Franklin

Thanks Ryan.

Ryan Connors

You guys did a great job. You did a great job laying out most everything. but one question I had was on regard to strategic acquisitions, municipal acquisitions within Pennsylvania, Chris, you mentioned that you’re already in touch with the highest levels of government and Pennsylvania, so obviously, this increases your profile even further in the state. So thinking about things like – situations like Pittsburgh, water and sewer, I know that people’s has actually been involved in that debate locally about potentially being a partner to help them solve their issues, now that they’re under PUC control. I’m thinking of the situations like Philadelphia gas works, now that you’re in the gas business. What’s your view on, as you said, you’ll probably have to digest this first, but longer-term, does this position you better for those types of major strategic assets on the municipal side?

Chris Franklin

Well, let’s take the Pittsburgh water situation first. I think most of us are aware and certainly to anybody who is in Pennsylvania is well aware that there’s an acute issue in the city of Pittsburgh with the water supply. And really the public’s confidence in the drink water supply. So, a lot of people works really hard to turn that around and to the extent that we and people’s together could be a solution or part of a solution for that issue in Pittsburgh. We stand ready. Listen, we’ve been in this business as you know, for 130 years and we’ve had a lot of successes in providing clean, clear water and in turnaround situations and stand ready to do that in Pittsburgh. Uh, I don’t think we have a, uh, a prevailing thought on exactly how that should or could get done, uh, elected officials are really in the driver’s seat of, of, of how that might happen.

But certainly if we were invited in that would be something of great interest to us. And I was – from conversations with Morgan clearly, I know Morgan has a great interest there. as do many folks who live in Pittsburgh or work in Pittsburgh, get given the acute nature of the problem. So, yes, I think it does provide opportunity for us to be a solution there. Ryan, I can’t – I can’t even begin to talk about Phillips Gas, there’s a lot of history there, not even on our radar screen. That’s just – that’s not something that we’re contemplating at this point.

Ryan Connors

Got It. Okay. Well, it’s helpful. Again, you did a great job, I think laying out the deal. congratulations.

Chris Franklin

Great. Thank you, Ryan.

Dan Schuller

Take care, Ryan. Yeah.


As we have no further questions, so I’d like to hand the call back to our host. Please go ahead.

Chris Franklin

Thank you very much for joining us today and obviously, we stand ready to answer any follow-up questions you may have. Dan, Brian, myself and others, we’ll take any questions you might have in follow-up. And again, thank you for joining us on, on a very exciting day.