Pacific, Enova Merger Wins Final OK
After 20 months of regulatory scrutiny, the parents of Southern California Gas and San Diego Gas & Electric officially tied the knot Friday, only hours after securing their final approval, this one from the Securities and Exchange Commission.
The $6.2-billion merger of Los Angeles-based Pacific Enterprises and San Diego-based Enova Corp. has created a new company, Sempra Energy, which is based in San Diego and serves more customers--6 million--than any other utility company in the country.
For consumers, the change will hold little drama. Southern California Gas and SDG&E; will be operated as separate subsidiaries, so they will deliver natural gas and electricity--as well as the bills--in the usual manner.
But Sempra’s top executives say they have great hopes for future growth and renewed their commitment that none of its 12,000 workers would be laid off because of the merger.
“We have the financial resources to move aggressively in the new energy marketplace,” Richard D. Farman, chairman and chief executive of Sempra Energy, said in a telephone interview from Montana, where he was vacationing. Farman was chief executive and president of Pacific Enterprises.
The merger will save Sempra more than $300 million by combining operations--a sum the California Public Utilities Commission is requiring Sempra to split equally between customers and shareholders, resulting in a small credit on each customer’s bill.
Southern California Gas residential customers will share $90 million over five years, resulting in a total credit of about $20 each. SDG&E;'s residential customers will get $35.5 million, or a total credit of about $40 apiece.
Los Angeles retains the headquarters of Southern California Gas and another, relatively new subsidiary, Sempra Energy Solutions, one of the unregulated energy service providers created to enter California’s new competitive electricity market.
About 250 Pacific Enterprises employees will move to San Diego, but about 7,100 Sempra and Southern California Gas employees will remain in Los Angeles, many at the landmark Gas Tower in downtown Los Angeles. About 180 employees of Enova and Pacific Enterprises accepted separation packages, a Sempra spokesman said.
The unanimous approval of the merger early Friday by the five SEC commissioners was the sixth regulatory nod received since the combination was proposed in October 1996. Two of the agencies with oversight--the Federal Energy Regulatory Commission and the PUC--required the companies to agree to measures that would prevent abuse of market power.
The merger, which was anticipated to close by the end of 1997, took so long to complete that two of the architects, Willis B. Wood, chairman and chief executive of Pacific Enterprises, and Thomas A. Page, chairman of Enova, retired in the meantime.
The companies said they will integrate operations by the start of next month, , but the real work of combining two corporate cultures will take significantly longer.
Consumer advocate Michael Shames said that job won’t be easy:
“I almost feel as if I attended a wedding ceremony after witnessing the bride and groom fighting in the back room,” said Shames, executive director of Utility Consumers’ Action Network in San Diego. “These people are going to have a rocky marriage.”
But Stephen L. Baum, Sempra’s vice chairman and president, said the two corporations have already been working together during the long wait, buying companies, forming joint ventures and starting construction of a power plant in Nevada.
“We’ve kind of been going right at it as much as we could,” said Baum, who was on holiday in Paris. He will become chairman and chief executive in 2000, and Farman will retire.
Shares of Sempra Energy common stock will begin trading Monday on the New York Stock Exchange under the ticker symbol SRE. Preferred shares of Pacific Enterprises, Southern California Gas and SDG&E; will not be affected by the merger.
Pacific Enterprises shareholders will receive 1.5038 shares of Sempra Energy common stock for each share of Pacific Enterprises common stock. Enova shareholders will get one share of Sempra common for each share of Enova common.
Pacific shares ended Friday at $39.75, up $1.06. Enova shares rose 69 cents to $26.63. Both trade on the NYSE.