El Paso, Coastal Stockholders Approve $16 Billion Merger
Stockholders of El Paso Energy and Coastal Corp. Friday approved the
merger of the two giants of the natural gas industry, moving the transaction
closer to reality.
El Paso Energy stockholders overwhelmingly authorized the company to
issue the required shares of common stock to complete the $16 billion pooling
of interests transaction, which will merge Coastal into a subsidiary of
El Paso. Coastal stockholders endorsed the terms at a separate meeting.
Each share of Coastal common stock and Class A common stock will be
converted on a tax-free basis into 1.23 shares of El Paso Energy common
stock, with corresponding conversions of preferred shares. Implementation
of the exchange will await regulatory approvals and is expected to occur
in the fourth quarter.
"With this mandate from our stockholders, we look forward to completing
the merger and moving quickly to realize the tremendous breakout opportunities
offered by this powerful network of assets," said William A. Wise,
president and CEO of El Paso Energy. "There is tremendous optionality
embedded in our combined assets-from our traditional natural gas markets
and our emerging LNG business to our new businesses in telecommunications
and Europe. We are entering an unparalleled new phase in value creation
for our shareholders."
While El Paso and Coastal stockholders were voting Friday morning El
Paso and Coastal attorneys were defending the two companies against charges
they conspired to interfere with the financial operations of another Texas
energy company, TransAmerican Natural Gas (see related
story this issue).
The combined company lays claim to being the only top tier player in
every segment of the domestic natural gas value chain, from production,
to processing, transmission, wholesale marketing, and merchant power. The
natural gas transmission system will consist of 58,000 miles of pipeline,
spanning the U.S. from California to New England and from the Gulf of Mexico
to Canada. El Paso will have a leading asset position in the fastest growing
producing areas in the U.S. and will have ownership in 8,000 net MW of
El Paso's original pipeline system runs through the Southwest from Texas
to the California border. Tennessee Gas Pipeline, acquired four years ago,
delivers from Texas and Louisiana through the East to New England, while
the more recently acquired (Oct., 1999) Southern Natural Gas system, spans
the Southeast and includes an ownership interest in Florida Gas Transmission
(see NGI, Jan. 24, including table of largest
gas pipelines, miles and throughput)
The addition of Coastal's ANR Pipeline and Colorado Interstate Gas will
fill in some blanks in the midsection of the country. Coastal also brings
with it an interest in Great Lakes Gas Transmission and Alliance Pipeline
from Canada to Chicago, scheduled to go into service this November. It
also introduces a potential conflict between El Paso's interest in Florida
Gas Transmission and Coastal's proposed underwater Gulfstream pipeline
project into Florida, and lands El Paso in the thick of the debate over
the proposed Independence Pipeline (ANR) from Midwest to East.
Still to be completed is El Paso's purchase of the old Texas intrastate,
Valero Natural Gas, from PG&E Corp. which was announced a week after
the announcement of the Coastal acquisition. El Paso also has pledged to
purchase a portion of the crude oil All American Pipeline, which it will
convert to carry natural gas from Texas to California. (See NGI, Feb. 7)
The combined company will be the second largest gatherer of natural
gas in the United States and the third largest U.S. producer of natural
gas --- after BP Amoco and ExxonMobil --- with over 5 Tcf of proved gas
equivalent reserves, Wise said when announcing the merger last January.
El Paso picked up significant E&P operations and properties with the
Sonat acquisition which will be augmented by Coastal. At the end of 1999,
Coastal said natural gas production was averaging about 870 MMcf/d with
total proved reserves of 3.6 Tcfe.
Besides its E&P activities, Coastal operates a number of U.S. oil
refineries with a total capacity of about 450,000 b/d. Coastal executives
responded to a query about the future of the refineries, saying there were
no plans for asset sales at this time. An El Paso spokesman pointed out
that earnings from Coastal's refinery, coal and liquids businesses would
represent less than 5% of ebit of the combined companies.
El Paso currently assesses its assets at $16 billion, while Coastal
laid claim to $15 billion at the end of 1999. The merger includes approximately
$6 billion of assumed debt and preferred equity. Each share of Coastal's
$1.19 Series A convertible preferred stock and $1.83 Series B convertible
preferred stock will be converted to 9.133 shares of El Paso Energy common
stock, and each share of $5.00 Series C convertible preferred stock will
be converted to 17.980 shares of El Paso Energy common stock.