Live Deals: KKR Makes Move Into Utility Mart –

The utility sector is finally getting some attention, thanks to a handful of big-name investors most recently joined by Kohlberg Kravis Roberts & Co.

The New York buyout giant this month invested $550 million in publicly traded DPL Inc., the Ohio-based parent of Dayton Power and Light Co., which sells electricity and natural gas to residential, commercial and governmental customers in West Central Ohio.

The investment marks KKR’s first in the utility sector, but is likely to be followed by others as the firm is actively looking for other deals, said a source close to KKR.

Should the deal close, KKR will own a 19.9% stake in DPL, which also plans to issue $425 million in debt.

But KKR’s interest in DPL did not come out of the blue, the source noted. DPL has been an investor in more than one of KKR’s funds.

The company will use the proceeds to expand its electric generation business, retire short-term debt and buy back approximately 20% of its 150 million outstanding shares in a Dutch auction that began two weeks ago.

Under terms of the agreement between KKR and DPL, KKR will own preferred stock and 31.6 million warrants with a $21 exercise price.

Dayton Power and Light’s electricity for its 24-county service area is generated at eight power plants and is distributed to 490,000 retail customers. Natural gas is provided to 305,000 customers in 16 counties.

Principal industries served by the company include electrical machinery, automotive and other transportation equipment, non-electrical machinery, agriculture, paper, and rubber and plastic products.

Partners at KKR could not be reached for comment.

Renewed Interest

Coming out of its worst year ever in terms of stock performance since 1975, the utility sector has seen several deals involving financial and strategic buyers over the last few months. According to industry observers, the surge of interest is due to the low stock prices and technology initiatives within the companies, such as new electricity-making processes.

An investor group led by an affiliate of CIBC and former Long Island Light Co. head William Catacosinos acquired TNP Enterprises, the parent of Texas-New Mexico Power Co., for $575 million last May. Then in October, investor Warren Buffet’s Berkshire Hathaway, a holding company primarily involved in the property and casualty insurance business, acquired MidAmerican Energy Holdings in Iowa for $2 billion.

At the end of last year, San Francisco-based Gryphon Investors added two companies to its Fort Worth, Texas-based platform Cummins Utilities Supply, an electric utility supply company that markets to large telephone companies.