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Loews Purchases Gulf South Pipe for $1.136B

Loews Purchases Gulf South Pipe for $1.136B

Loews Corp., a holding company whose far reaching businesses engage in everything from cigarette sales to hotel operations, will pay Entergy-Koch LP $1.136 billion for Gulf South Pipeline. Subsidiary Texas Gas Transmission LLC (TGT) will take over operations of the 8,000-mile natural gas pipeline, which transports 2 Bcf/d and provides a total working gas storage capacity of 68.5 Bcf.

The pipe extends from South Texas through the Gulf Coast region into Florida, and it includes 32 compressor stations and more than 100 major interconnects. Gulf South also has storage facilities in Bistineau, LA and Jackson, MS. The Houston-based pipeline is jointly owned by Entergy Corp. and Koch Industries Inc., and is part of the companies' overall plan to disband their partnership (see NGI, Sept. 13). TGT is headquartered in Owensboro, KY.

"We view Gulf South as a highly attractive pipeline system, both as a stand-alone business and as a complement to our Texas Gas Transmission subsidiary," said James Tisch, Loews' CEO. When asked why Loews pursued Gulf South, Tisch, who presided over a conference call to discuss the acquisition, said Loews was an "organization that responds to opportunities, and this opportunity presented itself."

Tisch noted that Gulf South and TGT are "geographically contiguous, but they are really at distant ends of the operational spectrum. Gulf South operates in a highly competitive area, and is really a gathering system, as opposed to TGT, which is operating under more of a rate of return...a regulatory environmental distribution system. There's really no significant overlap at all," and he added he did not think there would be any Federal Trade Commission regulatory concerns toward the acquisition.

TGT and Gulf South offer synergies, however, that will improve their overall efficiency, Tisch said. He did not offer any figures or timeline as to when the cost efficiencies would take effect, but said he hoped the "sister" pipelines would be successfully integrated within a year.

TGT's interstate pipeline system delivers 2.8 Bcf/d markets in the South and Midwest. Its pipelines extend 5,800 miles through nine states and six metropolitan areas: Louisiana, Texas, Arkansas, Mississippi, Tennessee, Kentucky, Illinois, Indiana and Ohio, and the cities of Memphis, Louisville, Evansville, Indianapolis, Dayton and Cincinnati. In addition, the system's nine market-area, underground storage fields in Kentucky and Indiana currently provide a certified storage capacity of 178 Bcf and 55 Bcf of working gas.

Entergy-Koch offered Gulf South through a blind bidding process. Asked about how competitive the bidding was, Tisch said, "We don't know against whom we were bidding. My guess is that it was very, very competitive. I think we won by a hair, but I don't know that for sure."

The sale of Gulf South is expected to occur before the end of the year and is subject to normal and customary conditions, including the filing of notification under the Hart-Scott-Rodino antitrust law. Loews said half the purchase price will come from new debt issues.

Loews' subsidiaries are engaged in property and casualty insurance through CNA Financial Corp., a 90%-owned subsidiary; production and sale of cigarettes through Lorillard Inc.; the operation of hotels through Loews Hotels Holding Corp.; the operation of offshore oil and gas drilling rigs through Diamond Offshore Drilling Inc., a 54%-owned subsidiary; the distribution of watches and clocks through Bulova Corp., a 97%-owned subsidiary; and TGT, a wholly owned subsidiary.

Lowes purchased TGT from Williams Cos. last year for $795 million in cash plus the assumption of $250 million of its existing debt (see NGI, May 19, 2003).

Entergy expects the sale of Gulf South, combined with the previously announced sale of Entergy-Koch Trading to Merrill Lynch, to result in a net cash impact to Entergy of more than $1 billion, the majority of which will be received by the end of 2005.

Entergy noted that previously issued 2004 as-reported earnings guidance of $3.65-3.75 per share will be revised to reflect actual results realized by Entergy-Koch in the fourth quarter, as well as the gain that will be realized on the combination of the sales of Entergy-Koch Trading, Gulf South and the eventual completion of the Entergy-Koch venture when these amounts are known.

Entergy affirmed previously issued operational earnings guidance for 2004 in the range of $3.70-3.80 per share. Operational earnings exclude results of $(0.07) per share from Entergy-Koch, and $0.02 per share related to a special item at Entergy's non-nuclear wholesale assets business. Operational earnings exclude these amounts because they will not recur in 2005 and beyond.

The company also affirmed previously issued as-reported and operational earnings guidance for 2005 in the range of $4.60-4.85 per share, and noted that this range reflects share repurchases under the previously announced $1.5 billion program that is in effect through year-end 2006.

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