Federal antitrust clearance and an agreement between PNM Resources, the staff of the Public Utility Commission of Texas (PUC) and some consumer groups moves PNM's proposed $1 billion purchase of Fort Worth-based TNP Enterprises (TNP) and its subsidiaries, Texas-New Mexico Power Co. (TNMP) and First Choice Power, two steps closer to reality.
The agreement, reached with several cities, the PUC staff, the Office of Public Utility Counsel, the Texas Industrial Energy Consumers and the Alliance for Retail Markets, was unopposed, PNM said, and was filed Thursday with the PUC. It outlines terms and conditions necessary for PUC approval, including the following:
"This settlement is a result of everyone involved recognizing that our proposed acquisition of TNP makes sense for both companies and Texas consumers," said PNM Chairman Jeff Sterba. "It moves us closer to realizing our projected financial benefits and brings financial stability to TNP, while bringing rate relief to customers and rate stability to TNMP for the next two years."
PNM Resources was notified Wednesday that it received antitrust clearance under the Hart-Scott-Rodino Act from the Federal Trade Commission. The company still needs approval from the New Mexico Public Regulation Commission, the Securities and Exchange Commission and the Federal Energy Regulatory Commission.
The proposed acquisition was announced last July. It includes $189 million in equal amounts of stock and cash and the assumption of about $835 million of TNP debt and senior redeemable cumulative preferred stock. The purchase and subsequent refinancing of TNP debt and securities is expected to lead to $40 million in annual pre-tax interest savings and $10 million annually of pre-tax synergy savings. The savings are expected to generate 10% annual accretion to PNM earnings per share in the first full year after closing and 20% accretion to free cash flow.
"We remain on target to achieve our stated goal of $10 million of annual corporate and operational synergy savings," said PNM CFO John R. Loyack. He said the first two completed steps of PNM Resources' financing plan have turned out better than the assumptions in the original estimate of $40 million annually. The company had originally disclosed its intent to issue $100 million of debt at 8% interest. PNM Resources since has entered into a floating-to-fixed interest rate swap that locks the interest on $100 million at 4.97% through November 2009. In addition, the company achieved a 6.625% interest rate on equity-linked securities to be issued to Cascade Investment LLC.
The TNP purchase will add 482,000 retail customers in Texas and New Mexico to PNM's customer base. With TNP, PNM Resources will serve nearly 716,000 electric customers and 459,000 gas customers. The combined company will have revenues of more than $2.3 billion and serve a number of growing communities, including Albuquerque and Santa Fe in New Mexico, and Dallas-Fort Worth, Houston, and Galveston in Texas. However, Sterba said last year the company will be on the lookout for more assets that fit strategically with its existing asset base in the western power markets and in ERCOT.
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