Panhandle Eastern Corp. said it reached an agreement Monday to buy Texas Eastern Corp. for $3.2 billion in a deal that would create the nation's second-largest natural gas pipeline system.
The surprise agreement appears to have ended a hostile attempt to take over Texas Eastern by Coastal Corp., another big energy company. Coastal, however, refused to concede defeat.
Panhandle said its offer of $53 a share was $650 million higher than the $42-a-share proposal made last month by Coastal. All three companies have their headquarters in Houston.
Texas Eastern's stock closed at $48.50 a share on Friday, and the stock markets were closed Monday for Presidents' Day.
Under the agreement, Panhandle will begin a cash offer today to purchase up to 80% of Texas Eastern's stock. The shares not purchased would each be exchanged for $53 worth of Panhandle stock. The offer is scheduled to expire at midnight March 20 and requires federal regulatory approval.
If the bid is successful, Texas Eastern would become a wholly owned subsidiary of Panhandle. The consolidated system of 27,000 miles of pipeline would be the nation's second longest behind Houston-based Enron Corp.'s 38,000 miles of pipe.
Panhandle was one of several companies invited earlier this month by Texas Eastern to examine its financial data and consider a "white knight" offer to counter Coastal's bid. Until Monday's announcement, Coastal had been the only announced bidder.
Both Boards Approve
Analysts have said that Coastal wanted Texas Eastern's extensive pipeline in the northeastern United States to provide access to the booming markets there. Panhandle also has the same need to tap into that region of the country.
The $3.2-billion offer was approved Sunday by Panhandle's board and accepted by Texas Eastern's board Monday.
In an effort to discourage a higher bid by Coastal, the pact carries a clause that requires Texas Eastern to pay Panhandle $60 million if Texas Eastern decides to merge with another company or if another company acquires more than 50% of Texas Eastern's stock.
But James S. Bailey, a spokesman for Coastal, would not acknowledge defeat on Monday, saying, "At this point, we are going to consider our options, including possibly raising our offer, dropping our bid or other course of action open to us."
James W. Hart, a vice president and chief spokesman for Panhandle, said his company and Texas Eastern consider the merger a completed deal, pending only the outcome of the tender offer for stock.
"We expect to win," said Hart, "and if anyone comes in and makes an offer that's higher than ours and knocks us out of the picture, they are going to have to count on reimbursing us $60 million."
Hart said proposed merger represents an excellent business fit between Panhandle, which has access to extensive supplies of natural gas, and Texas Eastern, with its extensive distribution system in the Northeast.
Talked to Other Firms
"With all these supplies, we now hook into the fast-growing, high-demand Northeast market," said Hart. "It becomes a natural fit."
Texas Eastern officials said they had talked with several interested companies in recent weeks. Dennis R. Hendrix, president and chief executive of Texas Eastern, said the agreement with Panhandle was by far the superior offer.
Panhandle, which now supplies natural gas to the Midwest, has a large supply of gas from fields in the Texas-Oklahoma panhandle and the Gulf of Mexico as well as a plant producing liquefied natural gas at Lake Charles, La., and a 22% interest in a Canadian pipeline.
Hart said Panhandle recognized the value of the fit after examining Texas Eastern's books earlier this month.
Panhandle said it would continue a program initiated by Texas Eastern to sell off its non-pipeline assets, including its exploration and production businesses. Hart said the sale would include Texas Eastern's North Sea properties, which analysts have said would generate about $1.5 billion.
If the Panhandle bid succeeds, it would represent a significant rebuff to Coastal. The diversified energy company grew enormously in 1985 with its $2.5-billion acquisition of American Natural Resources. Since then, Coastal had been working to reduce the corporate debt accumulated in that transaction but had sought Texas Eastern as an important outlet for its abundant supply of gas.