New Century, NSP Marriage Creates Top-5 Utility
New Century Energies and Northern States Power, two mid-sized
combination utilities, decided on marriage yesterday to create a
much larger company, fend off competitors and prepare for coming
deregulation. Through a $4.7 billion merger of equals ($9 billion
based on combined market capitalization), the companies will create
a Minneapolis-based electric and gas utility conglomerate with 3
million power customers and 1.5 million gas customers in 12 states
from Mexico to Canada.
Internationally, the company will serve about 2 million electric
customers and 400,000 gas customers in the United Kingdom, and will
have operations in Central Europe, Australia and South America. The
combined entity also will have total generating capacity of 21,720
MW, of which 15,133 MW is regulated in the U.S. Based on 1998
results, it would have revenues of $6.4 billion, earnings of $618.8
million and assets totaling $15.1 billion.
"This merger combines two well-managed, Midcontinent electric
and gas companies in order to provide a strong platform for
assuring low-cost, quality service to the region during a time of
rapid change in the utility industry," NSP Chairman James J. Howard
said in a statement.
The merger is expected to be a tax-free, stock-for-stock
exchange and will be accounted for as a pooling of interests. NCE
and NSP anticipate the merger will be accretive in the first full
year and thereafter to both sets of shareholders, assuming
realization of anticipated net cost savings of $1.1 billion in the
first 10 years of operations. The savings are expected to come from
consolidating operations, such as coal procurement and
transportation. However, the companies said they do not expect
corporate downsizing and major staff reductions.
Upon completion, holders of NCE stock will receive 1.55 shares
of the merged company stock for each share of NCE stock. Each share
of NSP stock will continue as one share of the combined company.
Based on outstanding shares, New Century Energies shareholders will
own 54% of the common equity of the combined company, and Northern
States Power shareholders will own 46%.
"I like it. I think it was a very smart move," said Ed Tirello,
of BT Alex. Brown. "I like the Mexico-to-Canada concept. I like
both these companies' foreign operations. Together it will make
them a nice force globally. I also like the fact that when you look
at the numbers they are forming the fifth largest generator and the
third largest [electric] transmission company and the third largest
[electric] distribution company. This is the way the industry is
going, and they are right on top of it. Also, it gives them about
8%/year growth in earnings after the first year of the merger, and
it's accretive in the first year.
"I don't see anything [bad here]," said Tirello. "I mean there's
no regulatory hassle." This merger comes nearly two years after
federal regulators scuttled Minneapolis-based NSP's proposed merger
with Wisconsin Energy Corp. "But there are no market power issues
here." The two companies' service territories are separated and
their power grids are not connected, though they say the grids
probably will be linked in the near future.
New Century was just formed two years ago through a merger of
Public Service Company of Colorado and Southwestern Public Service.
But its hunger to continue growing was well known.
"Look, in this industry you have to be big. You have to have
breadth to you," said Tirello. "You have to have the ability to
move large blocks of power. You also have to have a strong
international operation because you have to spread the risk. And
these guys have all that."
Northern States Power provides electricity to about 1.5 million
customers in five Midwestern states and distributes gas to more
than 475,000 customers in four Midwestern states and Arizona. It
also owns NRG Energy, a non-regulated energy company, and Viking
Gas Transmission, an interstate pipeline. New Century Energies
serves 1.5 million electricity customers and more than a million
gas customers in six Southwestern states. Its operating companies
include Public Service Co. of Colorado, Southwestern Public Service
Co. and Cheyenne Light, Fuel & Power. Other subsidiaries
include, New Century International, which owns a 50% interest in
Yorkshire Electricity in the UK; Utility Engineering, which
provides engineering services to utilities; Quixx, which develops
cogeneration; Planergy, which provides energy services; and eprime,
an unregulated commodity marketing affiliate.
Despite the expected savings, projected earnings growth and the
fact that Wall Street has accepted most recent utility mergers with
open arms, this deal didn't sit well with investors. Observers
speculated there was concern about the length of time it will take
to complete the deal, up to 18 months, and the fact that NSP's last
attempt at a merger with Wisconsin Energy failed. NCE share prices
sunk nearly 6%, or $2.19/share, to close at $36.50, and NSP's stock
fell 4%, or $1.06/share, closing at $26.19. PaineWebber downgrade
the stock of both companies to neutral.