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Utility's shares rise on buyout speculation

Florida Progress' stock price rises 6.5 percent and more than 1.5-million shares are traded as talk surfaces again that the company may be sold.

The stock price of Florida Progress Corp. jumped Thursday as Wall Street once again anticipates a sale of the power company.

The speculation on Wall Street is focused on PowerGen PLC, one of the United Kingdom's largest power companies, which has been shopping for a U.S. utility. But analysts have not ruled out other potential suitors, including utility companies in Texas.

This is the second time in about a year that industry watchers have expected a deal involving the parent of Florida Power Corp., the state's second-largest utility. That deal fell through.

Once again Wall Street expects a takeover of Florida Progress that could cost at least $5-billion, or $50 a share, according to Dow Jones News Service. That's a nice premium for shareholders but a hefty price to gain entry into the fast-growing Florida energy market.

"Well, here we go again," said Dave Parker, an analyst at Robert W. Baird & Co. in Milwaukee.

Florida Progress officials declined to comment on the stock activity and reports of a potential sale. PowerGen officials could not be reached for comment.

For consumers, it's too early to tell if a sale would affect their electric bills. In some cases, regulators in other states have approved utility mergers on the condition that the buyer lowers rates. Florida Power, which has 1.3-million customers, has among the highest rates in the state.

For employees, the activity on Wall Street creates more uncertainty about the future of the St. Petersburg company's more than 9,000 workers. For the Tampa Bay area, a sale would end local ownership of the 100-year-old utility that has been key to the economic development of the region.

"They've always been a good, community-minded company wherever they exist," said Roger Batchelor, a commissioner in Citrus County, home of Florida Power's largest power plant.

While rumors of a buyout have been circulating for the past year, Thursday's stock activity suggested that a deal appears imminent. More than 1.5-million Florida Progress shares were traded on the New York Stock Exchange, triple the typical daily volume.

The stock price rose $2.62{, or 6.5 percent, to close at $42.56\. The surge is small when compared to high-flying technology stocks. But the increase is meteoric for normally sleepy utility stocks. Additionally, Florida Progress "calls" were active in the options market Thursday. Buyers of call options think the stock will go up significantly.

The market activity stood out on a day when utility stocks lost ground. The Standard & Poor's electric utility index lost 1.3 percent Thursday. The index is down more than 10 percent since the beginning of the year as investors have soured on an industry fraught with uncertainty.

Competition has brought on a spate of dealmaking in the past three years, as utilities scramble to secure their futures. The merger wave has brought together utilities looking to reduce costs, improve their market share and gain clout with regulators.

As a mid-size utility, Florida Progress says it must grow in order to survive in the rapidly changing environment. Indeed, Dick Korpan, chairman and chief executive, has been preaching that Florida Progress needs to have 10-million customers. To reach that goal, Korpan, who took control midway through 1997 from Jack Critchfield, has told shareholders and employees repeatedly that the company is open to alliances, acquisitions and mergers. Company insiders call it "Dick's grow-or-die speech."

Last April, the company confirmed that it held merger talks with Scottish Power PLC, a large utility in the United Kingdom. The deal fell apart when Scottish Power balked at the asking price, which was reportedly about $4.9-billion.

Now, another U.K. company is interested in a union with Florida Progress, analysts said. "PowerGen has been around for three years in America," said Edward Tirello, an analyst at Deutsche Banc Alex. Brown in New York. "They are always looking."

Foreign utilities want a piece of the $230-billion U.S. electric market because of limited expansion opportunities at home. U.K. utilities are especially prepared for competition because their gas and electric markets were opened last year.

After failed talks with Florida Progress, Scottish Power bought PacifiCorp in Oregon for $11.8-billion. National Grid Group PLC purchased New England Electric System in April.

PowerGen, the U.K.'s third-largest electricity generator, has not been successful in finding a partner. The company held two sets of merger talks with Reliant Energy, formerly Houston Industries, but the two sides could not agree on who would run the merged company, according to analysts. The company also talked with Cinergy Corp. in Cincinnati.

PowerGen said it still has hopes of crossing the Atlantic. "We've said for the last 18 months that the U.S. is the most important deregulating market in the world at the present," finance director Peter Hickson told the British press in May.

This time the company is also armed with the profit from the sale of two power plants. Buying a U.S. company becomes more urgent because British regulators just told electric companies to cut transmission prices by as much as 30 percent starting next year. "Now, they have to replace earnings," said Doug Preiser, an analyst at McDonald & Co. in Cleveland.

Dow Jones reported that a deal between Florida Progress and PowerGen is rumored in the mid-$50-a-share range. "I think (Florida Progress) shareholders would like that price," Preiser said.

Until Thursday, Florida Progress' stock has sputtered this year like the rest of the utility industry. The stock is down 10.9 percent despite a turnaround in the company's earnings. The company has rebounded after a disastrous 1997 when its nuclear power plant in Crystal River was shuttered and a life-insurance subsidiary was taken over by Oklahoma regulators.

In addition, rumors circulated a few weeks ago that TXU Corp., formerly Texas Utilities Co., may be interested in Florida Progress. TXU has denied the speculation.

Employees say Florida Progress has imposed a hiring freeze and is conducting an inventory of its assets. Company spokeswoman Melanie Forbrick said she is not aware of an audit taking place. She said the company is in the middle of its yearly planning and budgeting cycle, and "we are scrutinizing all of our hiring activities to make sure they are in alignment with what the company is doing."

_ Times staff writers Helen Huntley and Josh Zimmer contributed to this report.

Florida Progress Corp., at a glance

- Subsidiaries: Florida Power Corp., the electric utility serving west-central Florida; Energy Fuels Corp., an energy and transportation company; Mid-Continent Life Insurance Co., which does most of its business in Oklahoma.

- Headquarters: downtown St. Petersburg.

- Employees: 9,125.

- 1998 revenues: $3.6-billion.

- 1998 net income: $281-million.

- CEO: Richard Korpan.

Sources: Bloomberg News, Times research

What a Florida Progress Corp. buyer would get

The good

- A profitable company that had $3.6-billion in revenue last year.

- Earnings growth of about 5 percent a year.

- Its Florida Power Corp. subsidiary is one of the fastest-growing utilities in the nation, adding about 25,000 customers a year.

- Its well-run, profitable Electric Fuels Corp. subsidiary.

The not-so-good

- A Crystal River nuclear power plant that has had performance problems.

- Its troubled insurance subsidiary, Mid-Continent Life Insurance Co., which is in receivership in Oklahoma.

- A utility that has little ability to sell or buy power out of state.

_ Florida is well behind the rest of the country in deregulating its utilities.