Yahoo Finance American Water Unit to Buy McKeesport Wastewater System
A subsidiary of the water utility American Water Works Company Inc. AWK – California American Water – has entered in agreement to acquire McKeesport wastewater system for an aggregate value of $156 million.
This acquisition will enhance Pennsylvania American Water, the subsidiary of American Water Works operational area and add nearly 22,000 wastewater customers to its existing customer base.
Acquisition to Close in 2017
Pennsylvania American Water and the City of McKeesport will seek approval of the acquisition from the Pennsylvania Public Utility Commission (PUC) and other regulatory authority. The acquisition is expected to close during the second half of 2017, subject to all necessary approvals.
No immediate Raise in Rates
The acquisition of the wastewater service provider would not alter the wastewater rates of the customers. Under the purchase agreement, Pennsylvania American Water mentioned that it will not increase base wastewater rates any earlier than one calendar year after the closing.
AMER WATER WORK Price
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Consolidation – Need of the Hour
Consolidation is the need of the hour in the fragmented U.S. water utility space. The old water utility infrastructure needs ample investments, which are easier for bigger players to make.
During the first half of 2016, American Water Works closed 10 acquisitions adding 7,556 customers to its existing customer base. The 13 pending acquisitions will add a further 47,845 customers to its existing base.
Another water utility Aqua America Inc. WTR is also quite active in the acquisition front completing three acquisitions in the second quarter of 2016.
Our View
We all need reliable water and wastewater services at reasonable costs. However, the cost of maintenance and upgrading the old existing wastewater system are going up. So it becomes an uphill task for the small local operators to match the rising expenses for upgrading existing infrastructure.
Amid the above backdrop the small operators in the water and wastewater service industry are merging with the larger ones having financial capabilities to carry on the infrastructural spending. In addition, the big water utilities have technical expertise to serve the customers in more efficient manner.
Zacks Rank & Key Picks
American Water Works currently has a Zacks Rank #3 (Hold). Some better-ranked water stocks are Companhia de Saneamento Basico do Estado de Sao Paulo SBS and Veolia Environnement S.A. VEOEY. Companhia de Saneamento Basico do Estado de Sao Paulo currently sports a Zacks Rank #1 (Strong Buy), while Veolia Environnement has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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