Midcon to Buy United Energy for $1 Billion : Merger to Create Second National Pipeline System

Associated Press

Midcon Corp., a holding company with interests in natural gas pipelines, exploration and mining, plans to acquire Houston-based United Energy Resources Inc. in a $1.14-billion merger that will extend Midcon's reach into major Southeastern markets.

The acquisition, announced Sunday evening, includes cash and an exchange of stock.

Initially, Midcon will offer $41 a share for 65% of United's 27.8 million outstanding shares. Subsequently, United's remaining holders will receive between 0.904 and 0.960 of one share of Midcon stock for each United share, the price to be determined by the value of Midcon's stock before the exchange.

O. C. Davis, chairman of Midcon, and J. Hugh Roff Jr., chairman of United, said in a joint statement: "The combination of these two systems will create one of the largest and most flexible gas pipeline marketing systems in the nation, with access to a wide range of gas supply and market areas."

To Be Wholly Owned Subsidiary

The merged corporation, comprising a number of subsidiaries, would have pipelines extending from Chicago to Texas and Denver to Florida. Midcon has 14,700 miles of pipeline, and United has about 10,000 miles.

United would be taken over as a wholly owned subsidiary of Midcon, the companies said.

"In a nutshell, the merger will create the second national pipeline system," said Don C. Bustos, a gas-pipeline industry analyst in Chicago with Duff & Phelps.

He said the combined corporation "has the potential to sell to every pipeline in the (national) system."

In addition, he said, Midcon carries into the agreement a reputation of reliability among both producers and users, a reputation that United lacked, Bustos said.

The merger is another in an industry trend that is likely to continue, said David Fleischer, an analyst in New York with Prudential-Bache Securities.

"It's a continuation of the consolidation in the natural gas pipeline industry. And the one conclusion I draw from it all is there will be more of these," Fleischer said.

Earlier this year, Coastal Corp. acquired American Natural Resources Inc., and InterNorth and Houston Natural Gas merged.

Including Tenneco, which has operations in other areas, the combined Midcon-United would be the fourth-largest pipeline company, Fleischer said.

In 1984, Midcon earned $146 million, or $4.86 a share, on sales of $4.16 billion. United that year earned $36 million, or $1.28 a share, on revenue of $4 billion.

Fleischer said litigation that is pending against United charging that it breached contracts to deliver gas because of unfavorable prices should not have a substantial effect on the new corporation.

In addition, the merger will give Midcon an improved mix of business with its entry into the Texas market, where petrochemical plants and electric utilities consume a significant portion of the nation's natural gas, he said.

"Midcon had a winter load and has balanced itself by wading into the industrial market," Fleischer said. "In the long run, it has excellent potential."

Under the terms of the agreement, United also granted Midcon the option to purchase up to 5.1 million shares of its common stock for $41 a share and gave Midcon an option to purchase, under certain circumstances, all of the capital stock of United Texas Transmission Co., United's intrastate Texas pipeline transmission subsidiary.

United also has subsidiaries in interstate and intrastate natural gas transmission and oil and gas exploration, development and production, and it serves markets in the Gulf Coast and Eastern United States.

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