NGI The Weekly Gas Market Report
Carolina Power & Light Co. (CP&L) would bulk upconsiderably with its planned acquisition, announced yesterday, ofFlorida Progress Corp., parent of Florida Power, for $5.3 billion.The combined company would be worth about $17 billion and serve 2.7million customers, nearly 200,000 of them gas. It also would be thenation’s ninth-largest energy utility based on generating capacityof more than 18,500 megawatts.
Clearly, CP&L sees the writing on the wall and wants to getbigger in anticipation of electricity deregulation. CP&L announcedits first gas assets acquisition in November, North Carolina NaturalGas (NCNG) for $354 million, with an eye toward significant additionsof gas-fired generation over the next 10 years (see Daily GPI Nov. 12, 1998). The deal was completed lastmonth. Florida Progress has no gas assets other than gas-firedgeneration.
“The acquisition of Florida Progress represents a major steptoward fulfilling our strategic plan of becoming a leading energyprovider in the Southeast,” said CP&L CEO William Cavanaugh.”Like the Carolinas, Florida is one of the highest-growth areas inthe country. The predominantly residential base of Florida Power(Florida Progress’ primary subsidiary) is an excellent complementto our mix of more commercial and industrial customers. Thecomplementary growth in both CP&L and Florida Power territoriesand the wholesale market in the Southeast will enhance our plans toadd more gas-fired generating capacity and will increase our sitingoptions as well as the markets for our product. With our recentacquisition of North Carolina Natural Gas Corp., this combinationwith Florida Progress will enhance our competitive position in thegeneration, power marketing and delivery of energy services in thebest area of the country to be in the energy business.”
Deutsche Banc Alex. Brown analyst Edward Tirello said he likesthe deal because it would bring two growth companies together.Florida Progress has one nuclear plant. Combining it withCP&L’s three nukes would create operating efficiencies. Tirellosaid CP&L’s management is “excellent,” and both companies havesubstantial and growing non-utility operations. The deal could bebad news for Scana and/or TECO Electric who may later fall prey tothe bigger CP&L, which Tirello said still must grow even afterit acquires Florida Progress. “I think Scana goes to them. I thinknot happily, but I think they will have to.”
The combined company’s $17 billion enterprise value would fallout as $8.0 billion in equity and $9.1 billion in net debt andpreferred stock. Revenues would be about $6.7 billion based on 1998figures. The combination is expected to be accounted for as apurchase and is anticipated to be accretive in the first full yearafter closing. Thereafter, Raleigh, NC-based CP&L expects thecombined company to have annual growth in earnings per share of 7to 8%.
Under the terms of the agreement, Florida Progress shareholderswill receive $54.00 per Florida Progress common share in acombination of cash and a new CP&L holding company’s commonstock. The total value of the transaction is approximately $5.3billion. Florida Progress shareholders will have the right to electcash or stock subject to proration if the elections exceed 65% incash or 35% in stock. The stock component of the consideration issubject to a collar if the average price of the new CP&Lholding company’s stock for the 20-day period ending five daysprior to closing is greater than $45.39 or less than $37.13. Boththe cash and stock components will be taxable to Florida Progressshareholders.
“This transaction provides shareholders with a premium thatrecognizes the value inherent in our Florida franchise and ourdiversified operations,” said Richard Korpan, CEO of St.Petersburg, FL-based Florida Progress.
This summer, CP&L added 325 MW of electric generation – partof a planned 7,000 MW of generation additions over the next decade- to meet growing retail needs and increase sales in thecompetitive wholesale market.
CP&L’s non-utility subsidiaries primarily include InterpathCommunications Inc., a network-based applications service provider,and Strategic Resource Solutions Corp. (SRS) a technology-basedenergy services company. Florida Progress’ primary non-utilitysubsidiary is Electric Fuels Corp. (EFC), which consists of threebusiness segments: coal mining and coal procurement, marinetransportation and rail services. In addition, Florida Progressowns a 1,100 fiber optic route mile network through its ProgressTelecommunications subsidiary. Non-utility revenues will representabout 15% of the revenues of the combined company.
The companies expect annual synergies in excess of $100 millionpre-tax primarily from the elimination of duplicate corporate andadministrative programs and operating efficiencies includingintegration of the Crystal River nuclear site with CP&L’s threeexisting nuclear sites. After the integration is completed, it isanticipated that the company will have a combined workforce ofabout 16,000 employees, reflecting a reduction of about 7%.
CP&L expects the new holding company to continue CP&L’scurrent dividend policy which has resulted in dividend increasesfor 16 of the last 17 years. CP&L currently pays an annualdividend of $2 per share. It is anticipated that Florida Progressshareholders who elect stock will receive the CP&L dividend ineffect at the time of the close of the transaction.
Cavanaugh will be chairman, president and chief executiveofficer of the combined company. Korpan will retire as chairman,president and chief executive officer of Florida Progress at theclose of the transaction and join CP&L’s board of directors.The combined company will be headquartered in Raleigh with FloridaPower headquarters in St. Petersburg.
The transaction is conditioned, among other things, upon theapprovals of shareholders and regulators. There is no formal stateapproval for this transaction in Florida. CP&L is in theprocess of creating a holding company and anticipates registeringas a utility holding company with the SEC under the Public UtilityHolding Company Act (PUHCA) of 1935 prior to the transactionclosing. It is anticipated that regulatory procedures could becompleted within 12 months.
Florida Power serves 1.3 million Florida electric customers.CP&L provides electricity and energy services to 1.2 millioncustomers in the Carolinas and provides gas distribution andservice to eastern and southern North Carolina.
©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |