Duke Power buying gas firm N.C. giant to pay $9.8 billion for PanEnergy Corp.

37,000 miles of pipeline

Natural gas companies are being snapped up by electric utilities

November 26, 1996|By BLOOMBERG BUSINESS NEWS

CHARLOTTE, N.C. -- Duke Power Co. said yesterday that it will buy PanEnergy Corp. for $9.8 billion in stock and debt, adding one of the largest U.S. natural gas pipeline companies to its electric utility.

The transaction, which offers $50 a share in stock, will allow Duke to sell electricity and natural gas to consumers in new ways, bundling its role as a resource supplier with its expertise on how to reduce energy consumption.

PanEnergy, which has 37,000 miles of pipelines, also adds a faster-growing business to Duke, a regulated utility.

Electric utilities are buying natural gas companies to expand in other markets as they are deregulated over the next few years, and to assure supplies as natural gas becomes increasingly important in electrical generation.

"All of the gas companies are going to go," said Edward Tirello, an analyst with NatWest Securities. "They will all be bought by the electric companies in the next three years."

Duke shares closed down $1.75 at $46.125 yesterday. PanEnergy shares rose $1.75 to $44.

Shares of Williams Cos., rose $4.50 to $57 amid speculation that the PanEnergy buyout may prompt more bidding for the few remaining large U.S. natural gas pipeline companies that haven't merged with an electric utility.

Moves to deregulate the U.S. electricity market, which are expected to be completed by the end of the decade, have already prompted Duke to expand beyond its traditional service area in North Carolina and South Carolina.

For example, Duke and Louis Dreyfus LLC have entered into a joint venture that sells power to utilities in other states.

Duke, based in Charlotte, N.C., said it will form a new company, Duke Energy Co. after acquiring Houston-based PanEnergy.

More electricity will come from power plants that burn natural gas, making it more important to have access to supplies of the fuel, Duke said. "It will in effect control the price of electricity," said William H. Grigg, Duke's chairman and chief executive.

Natural gas burns much cleaner than other fossil fuels, such as coal, and is expected to have an easier time passing the stiffer U.S. environmental regulations of the future.

More-efficient technology and increases in U.S. supplies also are cutting the cost of using gas-fired power plants.

Duke said the transaction, which it expects to complete within a year, will lower earnings by 4 percent to 6 percent a share in the first year and add to earnings thereafter.

PanEnergy shareholders will receive 1.04 shares of Duke Power for each PanEnergy share they hold. Duke also will assume PanEnergy's $2.09 billion in long-term debt.

Duke Power serves 1.8 million customers in North Carolina and South Carolina.

Pub Date: 11/26/96

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