NEW YORK, Oct 23 (Reuters) - Aqua America Inc has agreed to acquire privately-owned natural gas utility Peoples in an all-cash deal worth $4.3 billion inclusive of debt, it said on Tuesday, as the water utility seeks to diversify its service offering.
American utility companies have been building scale through dealmaking to help cost cuts and provide funds to help replace much of the country's aging critical infrastructure.
Billed as the first major acquisition of a gas utility by a water provider, the deal would create a company which is both the second-largest water utility and fifth-largest stand-alone natural gas local distributor in the United States with 1.7 million customers, according to a statement announcing the transaction.
"We remain confident, especially in the municipal water space, so this isn't a departure from water for us. This is more an expansion of our platform," Christopher Franklin, chairman and chief executive of Aqua, told Reuters.
The combined company will garner around 70 percent of its net income from its water business, an Aqua presentation said.
Shares in Aqua, which will use between $500 million and $800 million of debt and between $2.2 billion and $2.5 billion of new equity to finance the purchase, ended the day 7.3 percent lower.
"It's very difficult to judge on a single day's performance, and most utility deals see the share price fall until the market can digest the transaction and hear the company tell the story," Franklin said.
"We didn't expect the wider market to be down today as well, but we're not concerned as we believe shareholders will come to appreciate the rationale of the deal."
Wall Street sank on Tuesday, continuing a punishing month for U.S. stocks, as dismal outlook from industrial bellwethers sparked concerns over corporate growth and added to worries ranging from China's slowdown to Saudi Arabia's diplomatic isolation.
Aqua is buying Peoples from SteelRiver Infrastructure Partners, with the deal anticipated to be immediately accretive to Aqua's earnings in the first full year after its close - anticipated by the middle of 2019, the statement said.
While the company will have operations in 10 states, the majority of its business will be centered on Pennsylvania.
Moelis & Co and Simpson, Thacher & Bartlett LLP served as financial and legal advisers respectively to Aqua, with the seller's representatives being Morgan Stanley and Winston & Strawn LLP. (Reporting by David French Editing by Tom Brown)