High Energy : PacifiCorp Lands $9.6-Billion Deal and Is Already Looking to Broker Even More


After announcing the terms Friday of its $9.6-billion agreement to buy Energy Group of Britain, Oregon-based PacifiCorp served notice that it has no intention of stopping there--and that future deals could range from India to California.

Indeed, PacifiCorp said it might bid for some or all of the 16 California power plants put on the market by Southern California Edison and Pacific Gas & Electric. The Portland firm is one of many power companies planning to enter California’s energy market when consumers begin choosing their power suppliers early next year.

PacifiCorp’s acquisition is the latest of 50 or more overseas investments by U.S. utilities since 1992. Many have taken place in Great Britain, where U.S. firms have gobbled up seven regional utilities. The lure for cash-rich utilities is high-growth prospects and a more relaxed regulatory environment.


But Friday’s deal, word of which had been disclosed by the British firm on Tuesday, is by far the largest trans-Atlantic deal yet. And analysts say none of the combinations that have preceded it seems to complement the U.S. acquirer in so many ways, adding coal, power plants and wholesale electricity marketing expertise to PacifiCorp’s already-extensive array.

The boards of both companies have approved the terms of tender offer, which is subject to regulatory approvals in Britain and to the conditions of the Hart-Scott-Rodino Antitrust Act in the U.S.

PacifiCorp shares closed at $22, down 12.5 cents, in New York Stock Exchange trading Friday. That is up $1.25 since Monday, the day before the talks with Energy Group became public.

PacifiCorp said it will pay $5.8 billion in cash and assume $3.8 billion of the British company’s debt to complete the deal. To help finance it, PacifiCorp will sell its Pacific Telecom subsidiary to Century Telephone Enterprises of Louisiana for $1.5 billion in cash. It also plans to sell Pacific Generation, an independent power producer with interests in 12 projects totaling 800 megawatts, to raise more cash to complete the acquisition.

The per-share price of $11.35 being offered by PacifiCorp for Energy Group stock amounts to a 31% premium over the utility shares’ selling price a month ago.

PacifiCorp would be getting Energy Group’s St. Louis-based Peabody Coal, with vast U.S. and Australian coal reserves; its Eastern Energy unit, a major regional utility in Great Britain; and Citizens Lehman Power, a Boston-based power vendor that is one of the East Coast’s most successful power marketers. The British firm also has power projects underway in India and France.


The combined utility would have generation capacity of 17,000 megawatts, revenues of $10.4 billion, 26,000 employees and a customer base of 5 million customers in the United States, Britain and Australia. No “significant work force reductions” are planned, the companies said.

But because PacifiCorp will still have to borrow huge sums to complete the purchase, debt rating firms Moody’s Investors Service and Fitch Investors Service both said they will review the utility’s financial condition for a possible downgrade.

“They will incur a substantial amount of debt to purchase the U.K. company. It’s unclear how much. So we have put them on alert status,” said Fitch Investors Service director Michael Sagges.

Smith Barney analyst Bill Tilles was unconcerned, however, saying the companies are well suited for each other. He noted that Energy Group’s Peabody Coal, the world’s largest private coal company, would supply PacifiCorp coal-burning generation plants.

“PacifiCorp is good at generating power at very low costs from coal-fired resources, so if you look at this transaction from their skill sets and core competencies, it makes sense because it gives them more of what it is they do well,” Tilles said.

PacifiCorp’s chief financial officer, Richard O’Brien, said the acquisition will make the company a lower-cost competitor, partly because of access to Peabody’s coal. Also, PacifiCorp’s entry into California will benefit from Citizens Lehman Power because its expertise will help tailor energy sales to large customers.


As for the California power plants up for sale, PacifiCorp Senior Vice President Dennis Steinberg said: “We are going to look at those as we have other generation facilities across the country.”

PacifiCorp Chief Executive Fred Buckman, 51, will remain as president and CEO, while Derek Bonham, Energy Group’s executive chairman, will be invited to join PacifiCorp’s board of directors and management committee.


An Emerging Power

U.S. electric companies are expanding abroad to prepare for electric deregulation in the United States. PacifiCorp’s acquisition of Britain’s Energy Group would give the Oregon-based utility the largest U.S. coal mining company and the United Kingdom’s largest electricity distributor.


* Electric operations: Provides electricity and energy-related services to 1.3 million retail customers in seven Western states, including parts of California, through Utah Power and Pacific Power.

* PacifiCorp Financial Services: Owns and operates about 4,300 housing units in 13 states, owns and leases 33 commercial aircraft to airlines such as Asiana, Delta, United, Qantas and Northwest.

* PacifiCorp Power Marketing: Sells power throughout the U.S., offering unregulated wholesale marketing and resale of electricity to customers.



Revenue, in billions: $4.29 (1996)

Earnings, in millions: $505 (1996)

PacifiCorp revenues in billions

1992: $3.23

1993: 3.39

1994: 3.49

1995: 3.41

1996: 4.29

PacifiCorp net income, in millions

1992: $340

1993: 479

1994: 468

1995: 505

1996: 505

Sources: Company and wire reports


* Peabody Coal: The largest producer of coal in the U.S., with 26 mines and 9.4 billion tons of proven and probable coal reserves.

* Eastern Electricity: The fourth-largest generator and one of the largest suppliers of electricity in Britain, with more than 3 million customers.

* Citizens Lehman Power: Boston-based electricity marketing firm.

* Eastern Natural Gas: Major wholesaler and retail supplier of natural gas in Britain and has equity interests in three gas-producing fields in the North Sea.


Recent acquisitions by U.S. utilities of foreign power companies:

* June 1995: Dominion Resources of Richmond, Va., bought 50% of Empresa Corani, a Bolivian hydroelectric power company, for $58.7 million.

* August 1995: Southern Co. of Atlanta bought South Western Electricity of Britain for $1.65 billion.

* May 1996: GPU of New Jersey and Cinergy of Ohio combined to pay $2.59 billion for Midlands Electricity of Britain.


* November 1996: Dominion Resources agreed to pay $2.1 billion for East Midlands Electricity of Britain.

* December 1996: Entergy of New Orleans agreed to pay $2.1 billion for London Electricity in England.

* December 1996: Minneapolis-based Northern States Power Co.’s NRG Energy subsidiary agreed to buy 50% of Enfield Energy Centre of Britain for undisclosed sum.

* May 1997: Southern Co. bought 25% of Berliner Kraft & Licht, Berlin’s power company, for $830 million.

Note: Two of PacifiCorp’s units, Power Generation and Pacific Telecom, will be sold to help finance the acquisition.

Source: NatWest Markets and the companies