Mergers and Acquisitions

3 Months Ended

Mar. 31, 2016

Mergers and acquisitions.

Mergers and Acquisitions

Note 13 — Mergers and Acquisitions

Pending Merger with Liberty Utilities (Central) Co. and Liberty Sub Corp.

On February 9, 2016, Empire entered into an Agreement and Plan of Merger (the Merger Agreement) with Liberty Utilities (Central) Co., a Delaware corporation (Liberty Central), and Liberty Sub Corp., a Kansas corporation (Merger Sub), providing for the merger of Merger Sub with and into Empire, with Empire surviving the Merger as a wholly-owned subsidiary of Liberty Central (the Merger). Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Empire common stock (other than any shares owned by Empire or Algonquin Power & Utilities Corp. (APUC) or any of their respective subsidiaries or any shares for which appraisal rights have been perfected) will be cancelled and converted automatically into the right to receive $34.00 in cash, without interest.

The closing of the Merger is subject to certain conditions, including, among others, approval of Empire shareholders, expiration or termination of the applicable Hart-Scott-Rodino Act waiting period and receipt of all required regulatory approvals and consents, including from the Federal Energy Regulatory Commission, the Federal Communications Commission, the Arkansas Public Service Commission, the Kansas Corporation Commission, the Missouri Public Service Commission, the Oklahoma Corporation Commission and the Committee on Foreign Investment in the United States, which approvals and consents shall not, individually or in the aggregate, have or be reasonably likely to have a material adverse effect on the business, properties, financial condition or results of operations of Liberty Utilities Co. and its subsidiaries (including Empire and its subsidiaries), taken as a whole.

If Empire shareholders do not approve the Merger, or the Merger is not consummated by February 9, 2017, the Merger Agreement may terminate, although it may be extended six months in order to obtain certain required regulatory approvals. The Merger Agreement also provides for certain other termination rights for both Empire and Liberty Central. If either party terminates the Merger Agreement because Empire’s board of directors changes its recommendation, or, if within nine months after the termination of the Merger Agreement under certain circumstances, Empire shall have entered into a definitive agreement with respect to, or consummated, an alternative transaction, Empire must pay Liberty Central a termination fee of $53.0 million.  If the Merger Agreement is terminated under certain other circumstances, including the failure to obtain required regulatory approvals, failure to consummate the Merger after all closing conditions have been satisfied and a financing failure has occurred or a breach by Liberty Central of its regulatory cooperation covenants, Liberty Central must pay Empire a termination fee of $65.0 million.

Simultaneously with the execution of the Merger Agreement, Liberty Central delivered to Empire a guarantee agreement (the Guarantee Agreement) executed by APUC, the parent of Liberty Utilities Co.  The Guarantee Agreement provides for an unconditional and irrevocable guarantee by APUC of the full and prompt payment and performance, when due, of all obligations of Liberty Central and Merger Sub under the Merger Agreement.

In connection with entering into the Merger Agreement, Empire has incurred approximately $4.5 million of transaction costs as of March 31, 2016. We expect that the total transaction costs will be approximately $15 to $17 million, with approximately 50% payable in 2016 (assuming a 2017 closing date), of which $4.2 million was incurred in the first quarter of 2016.