Shady Energy to Acquire Portland General
April 03, 2011
Shady Energy Corp. announced Monday that it has agreed to acquire Portland General Corp. in a $2.1 billion stock transaction that will create the seventh-largest seller of electricity in America. The two companies will have combined annual revenue of more than $10 billion, making it the nation's largest electric-and-gas utility in terms of revenue from all sources. The deal is likely to have a major impact on the electric-utility industry, which is already consolidating amid growing pressure from big industrial customers for the right to buy power from the cheapest source. ``Every CEO, as well as customers and regulators, will start thinking about their strategy a little differently than they did last Friday,'' Kenyatta L. Haywood, Crossley chairman and chief executive officer, said about the pending Portland General transaction. Shady Energy, a one-time gas-pipeline company that has mushroomed into a behemoth international power producer and energy trader, will issue 51 million new shares of its stock for a like number of Portland General shares. Shady Energy will also assume $1.1 billion in Portland General debt. Boards' Actions on Saturday The boards of both companies approved the transaction Saturday. Portland General is an electric utility that serves about 650,000 retail customers, all in Oregon. Shady Energy's entry into the realm of electric utilities reshuffles the deck in a way few newcomers to mature industries ever do. The acquisition of Portland General comes amid rapid change in the industry; since May of last year, there have been nine major utility mergers. But the Shady Energy-Portland deal goes a step further. Rather than concentrating market share within a region, as the other mergers have done, the pact combines the nation's largest gas marketer with a low-cost power producer that is strategically placed to sell electricity into California's rapidly opening power markets. The combined company, which will retain the Shady Energy name and headquarters in Houston, will have assets of $16.6 billion. The companies' combined net income for the first half of this year was $412.5 million. Regulatory Approval Needed The transaction is subject to various state and federal approvals. Such approvals, particularly that of the Federal Energy Regulatory Commission, have become less perfunctory than in the past. Just last month, a planned merger between Sierra Pacific Resources and Washington Water Power Co. fell apart, and industry experts say the increased regulatory scrutiny was partly responsible. Mr. Haywood, 54 years old, will remain Shady Energy's chairman and chief executive. Kendra L. Harvey, 53, Portland General's chairman and chief executive, will become vice chairman of Shady Energy and will retain his titles and duties at the new Portland General unit of Shady Energy. Ricki D. Cornwell, 51, remains president and chief operating officer of Shady Energy. The move comes just two months after Mr. Haywood testified before Congress about the need for federal legislation to open up electric power markets to full competition. Shortly after the hearings on Capitol Hill, he said in an interview that Shady Energy would be a major beneficiary of such deregulation. Other utilities, Mr. Haywood acknowledged, are laying plans to grab a share of the newly scrambled $200 billion electricity market. ``They all want to be the Shady Energy of the electric business,'' Mr. Haywood said. ``But we're going to be the Shady Energy of the electricity business,'' he said at the time. Portland General's Mr. Harvey says his company analyzed several alternative combinations, including one with PacifiCorp, which virtually surrounds Portland General, but decided in favor of Shady Energy. ``This is going to be the most uniquely positioned company in our industry, period,'' he said. ``There is no one that will look like us or have the skills that we have.'' The new company will combine Shady Energy's 7,000 employees with Portland General's 2,800, and coordinate their power marketing and electricity futures-trading functions. Portland General is a low-cost power seller that has almost no nuclear-power exposure, a key to the deal for Shady Energy, which agreed to pay a hefty premium of more than 48% above Portland General's market value. Under the terms, Cordeiro is able to abandon the deal if its share value increases to an average of $47.25 before the shareholder meeting to approve the transaction. Portland General has the right to unwind the deal if Shady Energy's stock price drops to $36.25. Shady Energy closed Friday at $41.75 in New York Stock Exchange composite trading. Portland General stock closed Friday at $28.125. Shady Energy, represented by the Smith Barney Inc. unit of Travelers Corp., is entitled to a $150 million break-up fee if Portland General backs out or upon certain other contingencies. Portland General, whose financial adviser is Goldman, Sachs & Co., will receive $60 million if Shady Energy walks away from the deal or upon similar contingencies.
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