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Originally published October 26, 2007 at 12:00 AM | Page modified October 26, 2007 at 5:46 PM

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PSE, state's largest utility, to be acquired

Facing the need to spend billions on new power plants and equipment over the coming years, Puget Energy — the parent of Puget Sound...

Seattle Times business reporter

Facing the need to spend billions on new power plants and equipment over the coming years, Puget Energy — the parent of Puget Sound Energy, Washington state's largest electric and gas utility — has agreed to sell itself to a consortium of private investors for $3.51 billion.

Customer rates should not be affected by any change in control of the company, state regulators said.

The consortium, led by Australia's Macquarie Infrastructure Partners and three big Canadian pension funds, is paying $30 per share, a 25.3 percent premium over the stock's Thursday close.

The investor group also will buy $300 million of newly issued Puget Energy stock before the end of the year — giving the company an immediate cash infusion. The buyers will assume $3.2 billion in existing Puget Energy debt as well.

After the takeover is completed, the consortium also will secure new loans totaling at least $2.15 billion to help Puget Energy expand the amount of power it produces and hedge against fluctuations in energy prices — part of what the company said would be $5 billion in new money over the next five years.

"If you don't continue to spend, you find yourself in catch-up mode the way we are with roads and bridges," chief executive Steve Reynolds said in an interview. "We think there's a better model than constantly going back to the capital markets year after year."

Over the next two decades, Reynolds said, Puget plans to build 10 wind farms and 10 gas-fired power plants, both to keep up with demand and to meet the company's sustainable-energy requirements.

Puget Sound Energy has more than 1 million electric customers and just over 721,000 natural gas customers, primarily in the fast-growing Puget Sound region.

Despite a successful year in 2006 — it earned $219.2 million on $2.9 billion in revenue — Puget Energy has struggled over much of the past five years, and its stock price has lagged the rest of the utility sector for years.

But Christopher Leslie, chief executive of Macquarie Infrastructure, said Puget Energy is just the kind of company it likes to invest in, and plans to hold it for the long term.

"The mandate from our investors is to find well-run businesses that are stable and predictable and can put large amounts of capital to use over a period of years," Leslie said in an interview.

The deal would be funded by $3.2 billion in cash provided by the consortium members, $1.6 billion of new debt and $2.6 billion of existing debt.

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Puget Energy's stock rose as high as $28.60 in New York Stock Exchange trading Friday, before falling back to close at $27.86. Still, that represented a 16.3 percent increase, and was the highest Puget's stock has been since January 1999.

The company plans to keep its headquarters in Bellevue and retain Reynolds and the rest of its current management. It will continue to honor its existing collective bargaining agreements with three union locals.

The deal already has been approved by Puget Energy's board, but the company's shareholders also must vote to go ahead. It also must be approved by the Federal Energy Regulatory Commission and the state Utilities and Transportation Commission, a process likely to take several months. Reynolds said he expects the deal to be completed sometime in the second half of 2008.

The agreement gives Puget Energy until Dec. 10 to solicit better offers, a move intended to protect shareholders. Should another bid emerge, the company would have to pay an unspecified breakup fee to the consortium partners.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

Copyright © 2007 The Seattle Times Company

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