Mergers and Acquisitions

6 Months Ended

Jun. 30, 2016

Mergers and Acquisitions

16. Mergers and Acquisitions

Merger with Emera Inc.

Description of Transaction

On July 1, 2016, TECO Energy and Emera completed the Merger contemplated by the Merger Agreement entered into on Sept. 4, 2015. As a result of the Merger, Merger Sub merged with and into TECO Energy with TECO Energy continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Emera.

Pursuant to the Merger Agreement, upon the closing of the Merger, each issued and outstanding share of TECO Energy common stock was cancelled and converted automatically into the right to receive $27.55 in cash, without interest (Merger Consideration). This represents an aggregate purchase price of approximately $10.7 billion including Emera’s purchase price allocation for debt of approximately $4.2 billion.

The Merger Agreement requires Emera, among other things, (i) to maintain TECO Energy’s historic levels of community involvement and charitable contributions and support in TECO Energy’s existing service territories, (ii) to maintain TECO Energy’s headquarters in Tampa, Florida, (iii) to honor current union contracts in accordance with their terms and (iv) to provide each continuing non-union employee, for a period of two years following the closing of the Merger, with a base salary or wage rate no less favorable than, and incentive compensation and employee benefits, respectively, substantially comparable in the aggregate to those that they received as of immediately prior to the closing.

Merger-Related Regulatory Matters

On Apr. 11, 2016, Emera and TECO Energy filed with the NMPRC an unopposed stipulation agreement reflecting a settlement reached with certain intervening parties in the then pending proceeding seeking the approval of the Merger by the NMPRC. On May 2, 2016, the Hearing Examiner held a hearing to consider the stipulation agreement. On June 8, 2016, the Hearing Examiner filed a Certificate of Stipulation, recommending approval by the NMPRC of the stipulation with respect to which all intervenors had either consented or filed a notice of non-opposition.  On June 22, 2016, the NMPRC approved the stipulation, and an order was entered on that same day.

As part of the stipulation agreement filed with the NMPRC noted above, upon closing of the Merger, NMGC agreed, among other things, to:

· make commitments to charitable contributions and enterprises engaged in economic and business development in New Mexico of $0.8 million annually for three years,

· continue to provide an annual bill reduction credit of $4 million through June 30, 2018,

· evaluate and construct, at shareholder expense, an enlarged pipeline from its current system to the New Mexico/Mexican border at an estimated cost of approximately $5 million,

· establish, at shareholder expense, a matching fund of $10 million to extend its natural gas infrastructure to currently underserved or unserved areas in New Mexico, and

· contribute, at shareholder expense, $5 million within 5 years to economic development projects or programs throughout New Mexico.

The preceding pretax costs of up to $30.4 million (or approximately $18.5 million after tax) will be recorded in the third quarter of 2016 in the Consolidated Condensed Statements of Income.

Transaction-Related Costs

During the three and six months ended June 30, 2016, TECO Energy incurred approximately $71.4 million and $71.5 million, respectively, of pretax incremental transaction-related costs ($58.4 million after tax for the three months ended June 30, 2016), which are presented in “Merger transaction-related costs” on the Consolidated Condensed Statements of Income. For the three months ended June 30, 2016, these costs include $27.7 million of investment banking, legal and other consultant costs, $42.4 million for change-in-control and other compensation payments, and $1.3 million for a non-cash SERP curtailment charge. These costs are expected to be primarily paid in the third quarter of 2016 and the first quarter of 2017. The company will record $15.2 million in the third quarter of 2016, primarily for accelerated vesting of outstanding stock-based compensation awards in accordance with the Merger Agreement which will be paid in the third quarter of 2016.

See Notes 4 and 5 for information regarding impacts to the company’s taxes and employee postretirement benefits, respectively, as a result of the Merger.

Dividends Paid

On June 22, 2016, in preparation for the Merger with Emera and in accordance with the Merger Agreement, the TECO Energy board of directors declared a special pro-rated dividend at the then-current rate of $0.002527 per share per day that accrued from May 16, 2016 (the prior TECO Energy dividend record date) until and including June 30, 2016 (the day prior to the effective day of the Merger). This dividend was accrued on the company’s Consolidated Condensed Balance Sheet as of June 30, 2016. On July 12, 2016, TECO Energy paid the dividends of $26.8 million to shareholders of record as of the close of business on the last trading day prior to the effective date of the Merger.

Tampa Electric Company [Member]

Mergers and Acquisitions

14. Mergers and Acquisitions

Merger with Emera Inc.

As disclosed in Note 1, TEC is a wholly owned subsidiary of TECO Energy. On July 1, 2016, TECO Energy and Emera completed the Merger contemplated by the Merger Agreement entered into on Sept. 4, 2015. As a result of the Merger, Merger Sub merged with and into TECO Energy with TECO Energy continuing as the surviving corporation and becoming a wholly owned indirect subsidiary of Emera. Therefore, TEC continues to be a wholly owned subsidiary of TECO Energy and became an indirect wholly owned subsidiary of Emera as of July 1, 2016.

Pursuant to the Merger Agreement, upon the closing of the Merger, each issued and outstanding share of TECO Energy common stock was cancelled and converted automatically into the right to receive $27.55 in cash, without interest (Merger Consideration). This represents an aggregate purchase price of approximately $10.7 billion including Emera’s purchase price allocation for debt of approximately $4.2 billion (of which TEC’s portion of debt was $2.3 billion).

The Merger Agreement requires Emera, among other things, (i) to maintain TECO Energy’s historic levels of community involvement and charitable contributions and support in TECO Energy’s existing service territories, (ii) to maintain TECO Energy’s and TEC’s headquarters in Tampa, Florida, (iii) to honor current union contracts in accordance with their terms and (iv) to provide each continuing non-union employee, for a period of two years following the closing of the Merger, with a base salary or wage rate no less favorable than, and incentive compensation and employee benefits, respectively, substantially comparable in the aggregate to those that they received as of immediately prior to the closing.