By the OGJ Online Staff
HOUSTON, Oct. 8 -- Northwest Natural Gas Co. will borrow most of the $1.8 billion purchase price to buy Portland General Electric Co. from Enron Corp, company officials said Monday. An acquisition was widely rumored on Wall Street Friday.
The gas utility will create a new holding company that will leverage up its debt ratio to 80%, said Richard Reiten, CEO of Northwest Natural, Portland. Besides new debt, the holding company, which will be named at a later date, will assume $1.1 billion of Portland General's debt.
The acquisition will be paid with $1.55 billion in cash, $200 million in preferred stock, and $50 million of common stock. The cash will be obtained by borrowing 3 term loans of $950 million, 1 senior note at $450 million, and selling $150 million of common stock.
"The holding company will be investment grade inside 3 years after closing and the operating companies will be immediately," said Reiten on a conference call.
The merger will immediately add to earnings the first year after closing, he said. The merger is expected to be completed in the fourth quarter of 2002 pending customary regulatory approvals.
"We expect double digit earnings accretion even the first year," said Reiten.
He noted cost savings from the combination will result from joint meter reading, shared human resources, and call center operations, and benefits from using the trading expertise of Portland General to trade around Northwest Natural's physical natural gas assets.
The merger is not conditioned on obtaining financing, said Reiten. The financing for the cash part of the purchase price is already committed, he said. The merger is only conditioned on getting regulatory approvals. There is no break-up fee.
The transaction brings together the two largest utilities in Oregon and creates one of the largest corporations in that state. The new company will have 1.25 million electric and gas customers and own 2,000 Mw of generation, 26,000 miles of electric transmission, and 12,000 miles of gas distribution lines.
Enron, Houston, has been searching for a buyer of the utility since its agreement to sell Portland General to Sierra Pacific Resources Co., Reno, Nev., fell through because of financing difficulties earlier this year.
Since energy marketing and trading has come to dominate the company, Enron decided that the utility did not fit with its portfolio of investment and has wanted to get its investment out of the utility acquired in 1997.