Coastal Bids to Become Biggest Gas Firm With Offer for Texas Eastern
Coastal Corp. said Monday that it planned to launch a $2.6-billion tender offer for Texas Eastern Corp. in a deal that would make Coastal the nation’s largest natural gas company.
The $42-per-share offer was about 40% more than Texas Eastern’s closing stock price on Friday.
The announcement sent Texas Eastern stock soaring by $14.75 a share to $45 in trading on the New York Stock Exchange, which analysts said indicated the bidding may go higher.
At the same time, Coastal’s stock fell 75 cents a share to $34.125.
Houston-based Coastal is the third largest natural gas company in the country; Texas Eastern, also of Houston, is among the top six. Another Houston firm, Enron Corp., holds the top position, analysts said.
“In my view, Coastal and Enron are two prototypes of interstate pipeline networks of the future,” said Charles Strain, director of energy research for Lovett Mitchell Webb & Garrison in Houston.
Texas Eastern is attractive to both companies because of its pipeline system reaching the Northeast market.
Strain said even though the acquisition will put Coastal further in debt, in the long run it is a good move because pipeline regulations are expected to be relaxed.
Texas Eastern Noncommittal
William D. Hyler, an analyst for Oppenheimer & Co. in New York, said he was surprised by Coastal’s timing of the offer because of its debt.
Coastal had nearly $3.5 billion in debt outstanding as of Sept. 30, according to Coastal spokesman R. W. Wells.
“I believe they’ve always had an interest in this company,” Hyler said. “Apparently they thought that if they waited someone else would get it. In the long term, it looks good. It’s a good strategic fit.”
Hyler said that if the buyout is successful, he expects Coastal to sell off Texas Eastern’s exploration and production operations.
Monday’s jump in the price of Texas Eastern stock, however, prompted analysts to predict that Coastal would have to sweeten its offer to $45 or $48 per share.
Texas Eastern urged its shareholders not to take any action on the expected tender offer until it makes its recommendation.
Coastal said the decision to make the offer was approved at a Sunday night meeting of its board and reported that it would begin the offer today for all outstanding common shares of Texas Eastern.
In Houston, U.S. District Judge Lynn Hughes was considering a request from Coastal for a temporary restraining order to keep Texas Eastern’s board of directors from taking any action to prevent shareholders from accepting the offer.
James R. Paul, president and chief operating officer of Coastal, wrote his counterpart at Texas Eastern, Dennis R. Hendrix, requesting a meeting with the Texas Eastern board of directors to discuss a business combination.
“Operating flexibility and efficiencies brought about by a combination of our companies would significantly improve the abilities of each company to provide the best possible service to customers,” Paul wrote.
Coastal is a diversified energy firm with $8 billion in assets and operations in natural gas transmission and storage, gas and oil exploration and production, refining and marketing, coal, trucking and independent power production.
Texas Eastern, with $5 billion in assets, is involved in natural gas and petroleum products, pipeline and international oil and gas exploration and production, petroleum product and real estate projects.
Coastal said its offer will be financed primarily by bank borrowings and subordinated notes. Citibank has told the company by letter that it is confident it can provide up to $2 billion in senior bank financing, including $500 million Citibank will provide under a firm commitment.
Drexel Burnham Lambert sent a letter to Coastal saying it is confident it can place up to $1.3 billion in subordinated notes for Coastal.