Southern Restructures Businesses, Dahlberg Retires
"The times, they are a-changing" could be Southern Company's motto after a recent blitz of reorganization. The company reported that its board of directors approved the long-awaited spin-off of Mirant Corp. - formerly known as Southern Energy - and Chairman A.W. "Bill" Dahlberg is retiring upon completion of the transaction.
Mirant will be separated by the distribution of 272 million shares, or 80.3% of Mirant, to Southern's shareholders of record. The company said pending an Internal Revenue Service ruling, the distribution will be made on April 2 to the company's shareholders of record as of 5 p.m. (EST) on March 21.
"This is the final step in unlocking the value we created in building a fast-growing North American and worldwide energy business," said Dahlberg. "With the planned spinoff, we're delivering that value to our shareholders. We're also creating two great companies from one. I believe each has an outstanding future."
Although the final tally is not yet set, Southern expects that shareholders will receive a distribution ratio of 0.4 shares of Mirant for each company share they currently hold. Mirant - the global power producer and energy marketer - sold some 66.7 million shares (19.7%) in an initial public offering in September 2000.
The company also released a new strategy that it will implement upon completion of Mirant's spin-off. Southern said it would focus on its traditional retail business in the Southeast, competitive wholesale generation in the eight-state "Super Southeast" and energy-related products and services.
"Our strategy going forward allows us to take our strengths as a company and match them with the considerable growth opportunities we see in the Southeast - the region we know best," said Dahlberg.
Dahlberg, a 40-year Southern Co. veteran, will be replaced by Allen Franklin on April 2. Franklin, who has been with the company for 31 years, will also keep his current positions as president and CEO.
"Southern Company plans to sustain solid revenue and earnings growth by refocusing and capitalizing on the strength of the region we've known best for more than 100 years. the 'Super Southeast'," said Franklin. "We are ideally positioned to serve the nation's fastest growing region because of our size, financial strength, low-cost position and reliability. Our vision keeps us focused on sustainable growth, shareholder value and quality customer service."
Franklin outlined some of the company's future goals: lead the industry in service and customer satisfaction; continue to earn top-quartile returns, with EPS growth of at least 5% a year; double earnings from the competitive generation business over the next five years; and produce $50 million in net income from energy-related products and services over the next five years.
Southern wasted no time breaking in their new strategy, as the company reported that it is increasing its electricity generating capacity by 6,600 MW by 2004. Of that, 4,600 MW is earmarked for the competitive wholesale market in the Southeast.
"The new plants we are building over the next three years are state of the art in terms of efficiency and environmental controls," said Franklin. "Our goal is to maintain a strong electricity network to ensure that our four-state region does not experience major interruptions in the supply of electricity in the years ahead."
Franklin stated that electricity demand is expected to grow by 3% a year during the next three years. He added that peak demand on Southern's system is projected to be 34,917 MW by 2004, compared to 31,854 MW in 2000.
"The critical shortages and high cost of electricity in California today clearly show what can happen when generating capacity does not keep pace with economic growth, and when dependence on a single fuel source - primarily natural gas - increases the cost of production," Franklin said. Southern currently has a diversified electricity generating portfolio, with coal contributing 72%, nuclear 15%, hydroelectric 3% and oil and gas 7% during 2000.
Franklin said that the company has set reserve margins on its generating capacity of 13.5% to 15%. "Our experience shows that this margin is adequate to provide a highly reliable supply of electricity to our customers," the executive said. The company also said it is investing $950 million over the next three years for additional environmental controls on several of its plants.
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