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Utilicorp Buys Stake in Electric Line Company

Utilicorp Buys Stake in Electric Line Company

Adding to its long list of utility, marketing and transportation assets, Aquila Energy parent Utilicorp United entered into a strategic partnership with Quanta Services Wednesday for $400 million. Utilicorp hopes to increase its profit potential in the deregulating electric and telecommunications markets by teaming with the Houston-based Quanta, a provider of specialized services for companies in those industries.

Calling the deal a "complementary extension" of UtiliCorp's network strategy, Robert Green, UtiliCorp COO said that deregulation of energy and telecom utilities offers a very attractive growth opportunity. "Our partnership with Quanta, the premier energy and telecom contractor, will enable our two companies to combine skills and international experience to capture both energy and telecom network business in this market as it develops." He added that the market for U.S. network construction and maintenance is more than $40 billion with strong growth and a consolidation under way.

Jerry Cosely, a Utilicorp spokesman, said the company is breaking new ground with this venture. "In terms of a network aspect, this is all new to us. This is our first foray into the hardware construction and maintenance in the electric and telecom industries."

But Cosley also pointed out that this is not Utilicorp's first experience with telecommunications. In 1998, the Kansas City-based company entered into an alliance with Peco Energy to form EnergyOne LLC. This marketing arm offered AT&T long distance as part of a package that also included gas and power options. Unfortunately for Utilicorp, the partnership failed because the energy markets hadn't deregulated enough (See Daily GPI, April 29, 1998).

At closing of the transaction, Quanta will initially receive proceeds of $150 million in exchange for Convertible 6.5% preferred stock. The remaining investment of up to $250 million by UtiliCorp could take the form of a direct equity investment in Quanta and/or the purchase of Quanta's existing outstanding securities. No other terms were disclosed.

"We are pleased to announce our second significant investment-related strategic partnership as the deregulation of the power industry continues to increase in its intensity," stated John Colson, Quanta Services' CEO.

Quanta also has a similar agreement with Enron Capital & Trade Resources Corp. (ECT). This partnership, agreed to in October of 1998, required a $50 million investment from Enron.

Quanta Services, Inc. is a provider of specialized contracting services to electric utilities, telecommunication and cable television operators, and governmental entities.

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