The City of Philadelphia, represented by Ballard Spahr, announced today that it has signed an agreement to sell the assets of the Philadelphia Gas Works (PGW) to UIL Holdings Corporation (UIL) for $1.86 billion. The sale, which will enhance the City’s financial health by injecting at least $424 million in net proceeds into its pension fund, must be approved by City Council and the Pennsylvania Public Utility Commission prior to closing.

The sale is the largest transaction ever conducted by the City of Philadelphia and is the sale of the largest municipally owned utility in the country. Mayor Michael Nutter said, “Our agreement keeps rates frozen for three years, maintains PGW’s discount programs for low-income families and seniors, safeguards PGW employee and retiree pensions, and positions PGW to take full advantage of the abundant supply of natural gas in Pennsylvania to make our City and region a prime energy hub.”

Said Ballard Spahr Chair Mark Stewart, “This historic transaction included very complex transactional, political, and regulatory issues. That our team got it done―and on such favorable terms to the City―exemplifies both the skill of our M&A team and our experience with public-private partnerships. Terms were as important as price to the City. This transaction yielded a terrific result on both fronts. We are proud to have been a part of it.”

The agreement signed by UIL and the City requires that all PGW employees be offered employment at UIL. If an employee decides to retire or accept a job elsewhere, that position may go unfilled, but total employment may not dip below 1,350 employees for at least three years. Once the sale is complete, UIL plans to operate dual corporate headquarters in Philadelphia and New Haven, Connecticut. UIL currently serves about 706,000 electric and natural gas customers in Connecticut and Massachusetts and has combined assets of more than $4 billion.

PGW has annual revenues of more than $600 million, serves upwards of a half million residential, commercial, and industrial customers, and employs more than 1,600 people. PGW was seen as particularly valuable because of its proximity to the Marcellus Shale deposits and its liquefied natural gas (LNG) facilities. Thirty-three entities expressed interest in the utility when a sale was announced last year.

The sale will provide substantial support for Philadelphia’s pension fund, helping to address one of the most pressing financial issues facing the City. After paying off all of PGW’s bond obligations and putting aside funds for other liabilities including fully funding the PGW pension, prudently reserving for residual risks, based on current stock and bond markets and reasonable assumptions, the City expects to have between $424 million and $631 million remaining, which the administration will deposit into the City employee pension fund.

The pension fund is currently less than 50 percent funded, and this contribution is one part of a strategy to provide additional resources to it and improve its funding percentage. The pension fund’s low funded percentage is one of the biggest concerns mentioned by ratings agencies, so the deposit should be a credit positive for the City.

“This is a tremendous win for the City. The deal minimizes post-closing risk, maximizes value, and provides security for the employees, while balancing the goal of obtaining a long-term partner for the City,” said Gregory L. Seltzer, a partner at Ballard Spahr and lead negotiator and M&A counsel for the City on the transaction. “I’m delighted that a strategic approach, hard work, and practical legal advice resulted in a deal that exceeded our client’s expectations.”

Added Mayor Nutter, “We thoroughly vetted all bidders and chose UIL for a number of reasons, not the least of which was that it provided us with the strongest contract terms and value. … I am confident that City Council and the citizens of Philadelphia will arrive at the same conclusion as I have: that UIL is going to become a great addition to our City.”

The Ballard Spahr team was led by Mr. Seltzer and included Amit Kakkar (associate, Business and Finance), Laura A. Kowal (associate, Business and Finance), Sandra Maki Hashima (associate, Business and Finance), T. Conrad Bower (associate, Business and Finance), Shannon D. Farmer (partner, Litigation), Joanne Phillips (partner, Real Estate), Joy C. O’Brien (associate, Real Estate), Robert C. Gerlach (special counsel, Business and Finance), Brian M. Pinheiro (partner, Business and Finance), Robert S. Kaplan (associate, Business and Finance), Kurt R. Anderson (counsel, Business and Finance), Jonathan M. Calpas (associate, Business and Finance), Valarie J. Allen (partner, Public Finance), Ronald M. Varnum (of counsel, Litigation), and Alisa M. Gifford (associate, Business and Finance).

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