Hungry Energy East Adds CTG to its Plate
After swallowing two energy distributors in two months most
observers expected Energy East to enter a digestion phase, but the
company came back for a third helping yesterday. The parent company
of New York State Electric and Gas said it is adding CTG Resources,
Inc., parent of Connecticut Natural Gas (CNG), to its plate, which
already is loaded with CMP Energy and Connecticut Energy.
The agreement calls for Energy East to pay $355 million and
assume $220 million in CTG's long-term debt. Energy East said it
intends to finance the cash portion of the deal through a
combination of debt and cash. Forty-five percent of CTG Resources
common stock is to be converted into Energy East common stock, with
a value of $41 in cash per share of CTG. The remaining percentage
of CTG common stock will be converted into $41 in cash per share.
CTG shareholders can choose how much they want in stock and in
cash, but transaction will be tax-free if they receive Energy East
CTG stock prices jumped 2% yesterday after the announcement to
$38.38/share, while Energy East shares fell $0.13 to $26.
"This transaction is another important step in our strategy to
use our strong balance sheet and the proceeds from the sale of our
generation assets to selectively grow our distribution business in
the Northeast," said Energy East CEO Wes Von Schack.
Energy East's transformation began in 1998 with an electric
restructuring plan, which led to the sale of its coal-fired
generation assets and the recently announced sale of NYSEG's 18%
ownership in the Nine Mile Point 2 nuclear plant. The power plant
sale resulted in after-tax proceeds of $1.3 billion and eliminated
NYSEG's stranded costs.
Just two weeks ago, the company announced it was buying CMP Energy,
parent of Maine's largest electric utility Central Maine Power, for
$1.2 billion in cash and debt, and in April, Energy East bought
Connecticut Energy, parent of Southern Connecticut Gas (see Daily GPI
June 16 and
April 26) for $617 million.
Von Schack said the company's efforts to build a
"super-regional" energy distribution company are nearing
completion, at least for the time being, and it plans to "focus on
integration. We're focusing on growing the companies in the
Northeast, but who knows what the future may hold."
"I realize we have had three transactions in the last couple
months, but even when you take these together, they are far simpler
than many you have seen in the industry," he said, promising there
would be no regulatory hold up. "It will take no more than 12
months for all three to be approved."
He noted both CTG and NYSEG have very low gas rates and high
customer satisfaction ratings, and on the electric side NYSEG and
CMP are "very clean" with no stranded costs, nuclear concerns or
market power issues in power generation.
Following the completion of all three acquisitions, Energy East
will have 1.3 million electric customers and about 542,000 gas
customers, excluding any added through CMP Natural Gas, the Maine
gas distribution partnership of Energy East and CMP.
With CTG and Connecticut Energy, Energy East becomes the largest
gas distributor in the state with about 300,000 customers. "We now
have the critical mass that is necessary to effectively compete in
the state of Connecticut," said Von Schack. Although the two
companies have no electric customers in the state they plan to play
an active role in the competitive power market when retail
competition begins in 2001, he said.
CTG CEO Arthur C. Marquardt said Energy East was the "strongest
partner possible" for his company, which took only a few weeks to
examine its strategic alternatives after coming under competitive
pressure from Northeast Utilities (NU). NU muscled back into gas
distribution last month with the purchase of Yankee Energy, parent
of Connecticut LDC Yankee Gas.
Marquardt focused on the strength of their combined energy
services businesses. However "pipes and wires" will continue to be
the core business of Energy East. Von Schack noted there's still
significant room for distribution growth in Connecticut. There's
only a 38% saturation rate for gas service in CTG's service area,
Energy East said it expects the CTG transaction to be accretive
in the first year through reduced costs, greater efficiency and
revenue enhancements, but without a work force reduction. "We plan
to create more jobs rather than lay off employees," he said, noting
energy services will be a growth area for the combined company.
Under the purchase agreement with CTG, Marquardt will continue
as president and CEO and will become president and COO of XENERGY
Enterprises. One outside CTG Resources director will be added to
the Energy East board of directors.