Teco Energy Inc., owner of the power utility in Tampa, Florida, said it’s considering a potential sale as the industry faces increasing costs to meet new environmental rules. The shares rose the most in more than six years.
The company has retained Morgan Stanley to explore strategic alternatives, it said in a statement Thursday. News of the sale was reported earlier by SparkSpread. The shares closed 16 percent higher at $21.48 in New York, the biggest one-day gain since October 2008.
Utilities have been looking at mergers and acquisitions for growth as they grapple with tepid sales and rising costs from new regulations and the need to upgrade aging infrastructure. This week utility owner Black Hills Corp said it had agreed to buy SourceGas Holdings LLC for $1.89 billion.
“Consolidation has been a fairly steady trend in the sector,” said Mark Barnett, a New York-based utility analyst for Morningstar Inc. “There is a feeling in the industry, from both the regulated side and the company side, that bigger is better.”
The Obama administration has proposed rules to cut carbon and mercury emissions of power plants, leading some coal-burning plants to close.
Teco, which was valued at about $4.4 billion before Thursday’s move, is Florida’s third-largest investor-owned utility behind NextEra Energy Inc.’s flagship Florida Power & Light and Duke Energy Corp.’s Florida utility. Teco’s Florida utility borders those of Duke and FP&L. Both may be suitors for Teco, along with Dominion Resources Inc., Southern Co., and perhaps CenterPoint Energy Inc., Barnett said.
Rob Gould, a spokesman for NextEra, had no immediate comment. Duke doesn’t comment on merger speculation, spokesman Tom Williams said in a telephone interview. Officials at Dominion, Southern and CenterPoint also declined to comment.
“Relatively small utilities in decent service territories with good growth are attractive to buyers,” Kit Konolige, senior utility analyst for Bloomberg Intelligence, said in an interview. He cited Berkshire Hathaway Inc.’s $10 billion purchase of Nevada-based NV Energy Inc. in 2013 and the pending acquisition of Washington-based utility owner Pepco Holdings Inc. by Exelon Corp.
Barnett said an infrastructure fund might be a likely buyer. Infrastructure investors led by Australia’s Macquarie Group Ltd. agreed in October to buy Louisiana utility owner Cleco Corp. for $3.4 billion in cash, attracted by the steady, long-term returns from a state-regulated power company.
Teco’s Tampa Electric sells power to about 700,000 homes and businesses in Florida and its Peoples Gas utility delivers the heating fuel to about 350,000. The company’s New Mexico Gas unit has more than 513,000 customers in that state.
Teco said last week that a non-binding letter of intent with an unidentified buyer interested in its coal-mining unit had expired without a definitive agreement.