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A $1.36-billion purchase two electricity producers has catapulted St John's company into the big leagues

Operating primarily low-key electricity sector has kept Fortis Inc. relative unknown - until last Monday, when it announced leap forward with the biggest acquisition its 16-year history.

The $1.36-billion purchase two utility businesses Alberta British Columbia U.S.-based Aquila Inc. has thrust the hulking Fortis, which owns real-estate properties, onto radars of major-league investors. One analyst said some were surprised sheer size deal.

Fortis said acquisition, expected close first half 2004, will increase its assets about 75% surpass $3.6-billion, more than double its customer base 900,000, offering substantial diversification. Once deal completed, Fortis will operate five provinces with single division accounting more than 25% company's total earnings, assets cash flow. will "mitigate effect any single adverse event," company said.

As Friday, St. John's-based Fortis had market capitalization of about $951-million. operates distribution utilities in Newfoundland, Prince Edward Island, Ontario, Belize the Cayman Islands. has three power-generation subsidiaries Newfoundland, New York State Belize.

Fortis established parent of Newfoundland Power in 1987. Newfoundland Power its predecessor firms have been provincially distributing electricity since 1885.

vast majority Fortis' revenue comes from electricity operations Atlantic Canada. 2002, they contributed more than $460-million company's $715.5-million total.

Under leadership president chief executive Stanley Marshall, who took over post 1995, Fortis management has delivered solid earnings performance, growing the bottom line to $63.3-million 2002, $30.4-million 1998.

While week's acquisition may have caught some analysts off guard, surprise Fortis would go to the markets to raise capital purchase.

To help pay Aquila Networks Canada (Alberta) Ltd. Aquila Networks Canada (British Columbia) Ltd., Fortis revealed Tuesday $350-million subscription receipt offering to finance deal. financing comes after Fortis raised another $125-million preferred share issue closed early June.While markets watch whether Fortis' big step forward sure-footed one, analysts raised concerns larger -- likely more dilutive -- financing will required.

"Shareholders should pleased if company can complete financing raising only $350-million common equity," wrote Matthew Akman, an analyst CIBC World Markets,in research note. "Given rating agency scrutiny sector and high [capital expenditure] requirements initial years, we caution further equity may required."

Although he convinced B.C. Alberta utility assets are a great f Fortis, Mr. Akman added "the company is paying a steep price" them.

He agreed with management saying the acquisition will likely not add earnings per share until at least late 2006.

Investors seemed second those concerns sold off Fortis stock wake acquisition financing announcements, driving shares down last Monday's close $58.76 $54.60 last Wednesday. They closed $55.25 on Friday.

Two credit-rating agencies zeroed on deal assessing Fortis' debt.Dominion Bond Rating Service Ltd. placed company under review with developing implications, though believes acquisition good strategic f Fortis.Standard Poor's said would likely downgrade Fortis' cred rating unless its financial profile improves renewed its negative cred watch on company, which had just over $1-billion total debt June 30.

Analysts' perceptions company's earning power were also impacted RBC Capital Markets Raymond James cut their 2004 per-share estimates following financing announcement.

"We believe subscription receipt offering and reduced investor confidence will put continued downward pressure on Fortis' share price," RBC wrote research note.

Fortis executives were unavailable comment, a spokeswoman said.

Planned capital expenditures -- Fortis predicts the Alberta utility will spend an average about $110-million year over next five years, B.C. utility expected to spend about $80-million year -- are only one challenge associated with the firm's growth plans.

In prospectus describing deal, Fortis also cautions that Aquila Inc. lost US$2.1-billion 2002 that if its finances deteriorate further, its ability satisfy guarantee indemnity obligations complete acquisition could be undermined.

Further, Alberta utility has been sued by EPCOR Energy Services Inc. breach fiduciary duty and negligence, seeking, among other things, $83-million damages and costs relating a deal between two 2000. If successful, the litigation could "materially adversely affect business and operations of Alberta Utility," Fortis states the prospectus.

Still, Fortis has been riding high on spate of good news late, most recently thanks an August court ruling allowing the company proceed with construction a hydroelectric project Belize, despite opposition from environmentalists.

Earlier month, Fortis posted record second-quarter earnings $20.8-million.

The company's real-estate arm, Fortis Properties, has not been sitting dormant, either. On Wednesday, it announced a $43.2-million deal buy four Holiday Inn hotels in Ontario with a total about 630 rooms, FelCor Lodging Trust, the second-largest lodging real estate investment trust United States. deal St. John's company's first hotel acquisition outside Atlantic Canada.