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Carolina Power Buys NC Natural Gas for $354 M

November 16, 1998
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Carolina Power Buys NC Natural Gas for $354 M

Seeking to become a "one-stop" energy shop and a larger regional energy company, Carolina Power and Light (CP&ampL) announced its initial entry into the gas industry with the acquisition of North Carolina Natural Gas (NCNG) through a stock-for-stock transaction worth $354 million. The agreement is still pending state regulatory and shareholder approval, so no closing date has been announced. The acquisition reflects the strategy CP&ampL announced last April to become "an organization with the potential to be a one-stop shopping service for our customers."

CP&ampL CEO William Cavanaugh III said the purchase is a logical fit. "We have plans for significant additions of gas-fired power plants over the next 10 years to meet our customers' needs. Access to a competitively priced gas supply is integral to our long-term strategy," he said. "To better serve our customers, we plan to create a larger regional platform from which to expand our energy-related products and services throughout the Carolinas and beyond."

Calvin Wells, NCNG CEO, shared Cavanaugh's bullish sentiments. "NCNG will benefit by being part of a larger organization in a consolidating industry."

"The ironic thing about our first move into the industry," said Mike Hughes, a CP&ampL spokesman, "is that in 1952, we bought all the energy assets of a company called Tidewater, except their gas assets. After that, those gas assets spun off and turned into NCNG." Hughes added that CP&ampL is still looking to expand gas assets through more acquisitions, strategic alliances, or mergers.

Cavanaugh noted NCNG has enjoyed a strong customer growth rate over the last few years -- about three times the national industry average. "[W]e believe there is even more opportunity to increase the penetration of gas to customers in our service area. our overlapping service areas will provide increased growth opportunities between the two operations."

Before this agreement, CP&ampL provided power and electric services to 1,153,000 customers in 30,000 square miles of central and eastern North Carolina. Now gas enters the picture. On the Lee Steam Electric Plant in Wayne County, Carolina Power expects four gas-fired combustion-turbine generators to be on line by mid-2000. These generators will be powered by NCNG and will provide 686 additional megawatts of power to customers. Other gas-fired plants under construction include two peaking plants near Ashville NC, which will add an extra 160 MW each to a coal-fired base load plant. Since these plants are in the western part of the state, NCNG will not provide their gas, and CP&ampL has not announced who will.

Last week's agreement calls for each common share of NCNG to be converted into CP&ampL stock at an exchange rate of $35 divided by the average price of CP&ampL stock in the 20-day period before the transaction's end date. Terms prohibit the shares' value from exceeding $0.8594 or falling below $0.7359. CP&ampL will pay NCNG shareholders $354 million to complete the deal. The gas company, which serves 173,000 customers in 42 out of 100 counties in North Carolina, will be operated as a wholly owned subsidiary of the Raleigh-based power company.

Both sides hope the regulatory issues will be taken care of in six months. Wells will remain CEO of the subsidiary, report directly to Cavanaugh, and participate on the CP&ampL senior management committee.

John Norris

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