NUI Corp. stunned the financial community on Friday by announcing that it will sell the entire integrated natural gas business within the next few months. CFO A. Mark Abramovic said the board of directors of the New Jersey-based firm considered a sale in the best interests of all stakeholders going forward because of credit downgrades and “adverse business conditions.”

Abramovic, who was appointed president following John Kean Jr.’s resignation, led a 30 minute conference call with analysts Friday morning. Kean, who resigned to “pursue other opportunities,” had served as CEO, president and as a director.

Admitting he did not yet know all of the answers, Abramovic made clear that the board intends to sell its gas operations, which include regulated gas distribution companies and unregulated enterprises such as wholesale energy trading, “as a whole and not in parts.” If the bids for the entire company are unsatisfactory, he said the board then would consider selling off pieces. A separate sale is being pursued for the telecommunications arm of the business, however. A review of the entire business had been ongoing since last March.

“The board reviewed all of the scenarios over the next several years, and the board really felt that it was in the best interest of all concerned to sell the business,” said Abramovic. “It isn’t one particular issue or two issues. There isn’t a liquidity problem. There’s nothing hanging out with goodwill or derivatives. The board was looking at the long term for the next three years, and what will be the driver for NUI, and they decided this would be best for all of the shareholders.”

Abramovic told analysts, “this was an extremely difficult decision,” but “based on the company’s leverage…recent downgrades, the board made the right decision.” The board and a special committee, he added, had considered several strategic alternatives before deciding to sell.

The CFO did not offer any sales estimates or indicate potential buyers, but said NUI hopes to have a sales agreement in place within three to six months. Berenson & Co. is serving as a financial adviser to the company, and a co-manager also is expected to be named.

Based on Thursday’s closing price of $16.65 a share, NUI’s market value is about $266.8 million. NUI reported $581.9 million of long-term debt on June 30. The company has 265,000 gas customers in New Jersey, 100,000 in Florida, 55,000 in Maryland and about 500 in Virginia. It also jointly owns a gas storage field in Virginia with Duke Energy Gas Transmission (DEGT), which can hold about 1 Bcf.

NUI, parent of the Elizabethtown Gas distribution company in New Jersey, on Friday also revised downward its earnings guidance for the fiscal year, which ends Sept. 30, to $0.95 to $1.05 per share from $1.10 to $1.25 per share. A year-end fiscal report is expected in November.

The revised guidance, said Abramovic, “basically lies in operational and maintenance expenses. We are re-engineering our cash management program and other areas within the company. The cost of insurance has risen quite a bit from 2002 to 2003; pension expenses are up, driven by health care and prescription drugs, which have been significant.”

For the nine months ending June 30, revenues rose 28% to $549.6 million, and net income from continuing operations before accounting changes rose 12% to $22 million. However, NUI reported net losses of $25.1 million in the latest fiscal quarter and $16 million in losses in 2002. Moody’s Investors Service cut NUI’s senior unsecured debt below investment grade in March and then lowered the rating to “B1,” its fourth-highest junk level on May 7, citing poor results from its non-regulated businesses.

On another front, NUI Utilities Inc. has entered into a letter of intent with a lender to provide it with an additional $50 million unsecured credit facility to fund its short-term needs. “NUI is pursuing other alternatives to provide NUI Utilities with sufficient credit capacity to continue to satisfy its short-term needs in the event the $50 million facility is not obtained,” it said in a statement.

The interim facility, said Abramovic, had been discussed earlier this year, and is to “make sure that under the most extreme circumstances we can provide all of the gas for our customers.” He said NUI had done a stress test on its gas supply model, indicating where it would be if gas prices spiked as high as they did during the winter of 2000, or if there was high demand.

“To be comfortable, we decided to get an incremental credit facility and have enough liquidity left over for dry powder” he said. Another contributor to the facility was the fact that NUI was not able to pay down its short-term facility as much as it had wanted to earlier this year because of higher gas prices, Abramovic said.

In response to the news, Moody’s on Friday placed the debt ratings of the corporation and its utilities under review with “direction uncertain.” About $250 Million of NUI Utilities debt and $60 Million of NUI Corp. debt is affected.

“Moody’s action reflects the uncertainty surrounding the identity and credit standing of the potential buyer or buyers, the terms of sale, the conditions that may be imposed by regulators having jurisdiction over the sale, and the continuation of support from NUI’s lenders and other interested parties during the period of transition.”

The review “will consider the potential impact of the sale on the company’s operations as well as the ability and willingness of any potential buyer to assume and service NUI’s outstanding debt. Over the near term, we will monitor the company’s progress in selling non-core assets as well as its liquidity position as it enters the winter heating season.”

Based in Bedminster, NJ, the 148-year-old holding company’s operations are organized and managed under three primary segments: Distribution Services, Wholesale Energy Marketing and Trading and Retail and Business Services.

The Distribution segment distributes natural gas in four states, Wholesale contains the operations of the NUI Energy Brokers Inc. subsidiary and the storage and pipeline operations of Virginia Gas, and the Retail segment includes the operations of NUI Telecom Inc., Utility Business Services Inc. and NUI Energy Inc. subsidiaries.

In May, NUI sold substantially all of the customer accounts of retail trading subsidiary NUI Energy Inc. to Houston Energy Services Co. LLC (see Daily GPI, May 29 ). However, Abramovic said the trading arm was not the sole contributor to NUI’s decision to sell. The decision was related to company operations overall.

Just a month ago, NUI and DEGT opened a new bedded salt natural gas storage facility in Saltville, VA (see Daily GPI, Aug. 28 ). Abramovic said that NUI would “have to have a discussion with Duke about our plans to sell the business,” but said he was not prepared to talk about it yet.

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