UNISOURCE ENERGY APPROVES TRANSACTION WITH
INVESTOR GROUP; SIGNIFICANT EQUITY INVESTMENT
WOULD STRENGTHEN LOCAL UTILITIES
TUCSON, Ariz., Nov. 24, 2003--The
Board of Directors of UniSource Energy Corporation
(NYSE:UNS) has approved an investor group's
offer to acquire all of the company's outstanding
shares in a transaction that would strengthen
the capital base of the company's regulated
utility operations.
The transaction provides up to $260 million
of additional capital to Tucson Electric Power
Company (TEP), UniSource Energy's principal
subsidiary, including the retirement of a $95
million inter-company loan from TEP to UniSource
Energy.
An affiliate of Saguaro Utility Group, L.P.
has agreed to pay $25.25 per share of UniSource
Energy common stock, representing a premium
of 30 percent over the closing price on Friday,
November 21, 2003. The group's general partner
is Sage Mountain, L.L.C., an Arizona company
managed and owned by Frederick B. Rentschler,
former president and chief executive officer
of Armour-Dial, Beatrice Companies and Northwest
Airlines. The group's limited partners are investment
funds affiliated with Kohlberg Kravis Roberts
& Co., J.P. Morgan Partners, LLC, and Wachovia
Capital Partners.
The approximately $3 billion transaction would
leave UniSource Energy's senior management team
in place, and the company's headquarters would
remain in Tucson. No changes in UniSource Energy's
operations or personnel are anticipated as a
result of this transaction.
"This transaction gives our local management
team additional resources to help us serve the
energy needs of communities across Arizona,"
said James S. Pignatelli, who would continue
as UniSource Energy's Chairman, President and
Chief Executive Officer under the proposed purchase.
"We will be a stronger company as a result
of this transaction. This investment ensures
that we can maintain the service and reliability
that have become our hallmarks while pursuing
our plans to bring service improvements to our
customers and communities," Pignatelli
said.
"Our Board of Directors approved this
transaction after careful consideration of the
best interests of all of our constituents, including
our shareholders, customers, communities and
employees. Shareholders of UniSource Energy
will realize the full value of their investments,
our customers and communities will benefit from
a significantly strengthened, locally operated
utility company, and our employees will enjoy
the enhanced opportunities that will accompany
our development," Pignatelli said.
UniSource Energy serves approximately 550,000
customers across Arizona through its two regulated
subsidiaries, TEP and UniSource Energy Services
(UES). TEP provides electric service to more
than 360,000 customers in the Tucson metropolitan
area, while UES serves 77,500 electric customers
and 126,000 gas customers in other parts of
the state. UniSource Energy's subsidiaries also
include Millennium Energy Holdings, Inc., which
oversees the company's unregulated investments,
and UniSource Energy Development Company, which
is developing a\ 400-MW coal fired generator
at TEP's Springerville Generating Station.
"We are delighted to be making this investment
in one of Arizona's great public utilities,"
said Scott Stuart, a member of KKR. "As
long-term investors, our goal is to invest in
the highest quality businesses and back the
strongest management teams we can find, providing
them with the financial resources to implement
their strategic initiatives. Through this investment,
UniSource Energy will be able to move more quickly
and decisively to pursue its plans to further
strengthen its businesses and enhance service
and reliability for customers in Arizona. We
believe we have found the right team with the
right game plan in UniSource Energy."
"Jim Pignatelli, his senior management
team and UniSource Energy's 1,700-plus employees
have built an outstanding reputation for balancing
the interests of the company, its customers
and the communities they serve," said Jeffrey
Walker, Managing Partner of J.P. Morgan Partners.
"UniSource Energy satisfies the energy
needs in one of the fastest growing regions
in the U.S., and we look forward to supporting
their continued growth."
The transaction is structured as a merger and
is expected to close in the second half of 2004.
The transaction is subject to customary closing
conditions, including the approval of UniSource
Energy shareholders and approvals and other
actions by the Arizona Corporation Commission
(ACC), the Securities and Exchange Commission
under the Public Utility Holding Company Act,
the Federal Energy Regulatory Commission under
the Federal Power Act and federal antitrust
authorities under the Hart-Scott-Rodino Antitrust
Improvements Act.
TEP and UES would remain under the oversight
of the ACC, which sets utility rates for Arizona
consumers. The purchase would not affect the
rates paid by UniSource Energy's utility consumers.
TEP's rates are frozen through December 2008,
while UES' rates are frozen through August 2007.
Pignatelli will discuss the proposed acquisition
today during a conference call that will be
available live on the Internet. The conference
call is scheduled to begin at 7 a.m. MST (9
a.m. EST). To listen to the live conference
call, dial 877-582-0446 from the United States
or 706 645-9751 from outside the United States
five to 10 minutes prior to the event and reference
confirmation code 4205023. A telephone replay
will be available for seven days. To listen
to the replay, dial 800-642-1687 from the United
States or 706-645-9291 from outside the United
States and reference confirmation code 4205023.
A live audio-only webcast of the conference
call will be available through a link at www.UniSourceEnergy.com.
Listeners are encouraged to visit the Web site
at least 30 minutes before the event to register,
download and install any necessary audio software.
A recording of the webcast will be available
for 30 days through a link at www.UniSourceEnergy.com.
The limited partners of Saguaro Utility Group,
L.P. specialize in making investments on behalf
of public and corporate pension funds, endowments,
insurance companies and individuals.
KKR is a private investment firm headquartered
in New York, London and Menlo Park, California,
focused on making long-term investments in attractive
businesses to implement value-creating strategies.
Founded in 1976, KKR has completed more than
119 transactions in North America and Europe
involving in excess of $114 billion in total
financing. KKR's investors are primarily institutions,
including state and corporate pension funds,
banks, insurance companies and university endowments.
For more information, visit www.kkr.com.
J.P. Morgan Partners (JPMP), formerly Chase
Capital Partners, is a global partnership with
approximately $21 billion in capital under management
(as of September 30, 2003). It is a leading
provider of private equity and has closed over
1,300 individual transactions since its inception
in 1984. JPMP has more than 130 investment professionals
in eight regional offices throughout the world.
J. P. Morgan Partners' primary limited partner
is J.P. Morgan Chase & Co. (NYSE: JPM),
one of the largest financial institutions in
the United States. For more information, visit
www.jpmorganpartners.com.
Wachovia Capital Partners (WCP) is the principal
investing group of Wachovia Corporation, the
nation's fifth-largest financial holding company.
Since 1988, WCP has committed approximately
$3 billion of capital to more than 200 companies.
WCP has offices in Charlotte, NC and New York
City. For more information, visit www.wachoviacapitalpartners.com.
UniSource Energy's primary subsidiaries include
TEP, Arizona's second-largest investor-owned
electric utility; UES, an electric and gas utility
serving customers in Northern and Southern Arizona;
and Millennium Energy Holdings, parent company
of UniSource Energy's unregulated energy-related
businesses. For more information about UniSource
Energy and its subsidiaries visit www.UniSourceEnergy.com.
New Harbor Incorporated and Morgan Stanley
& Co. Incorporated acted as financial advisors,
and Fennemore Craig, P.C., and Thelen Reid &
Priest LLP served as legal counsel to UniSource
Energy in connection with the transaction. Credit
uisse First Boston, J.P. Morgan Securities Inc.
and Lehman Brothers Inc. acted as financial
advisors, and Simpson Thacher & Bartlett
LLP and Milbank, Tweed, Hadley & McCloy
LLP served as legal counsel to the investor
group.
Certain statements included in this news release
are intended as "forward looking statements."
These statements include assumptions, expectations,
predictions intentions or beliefs about future
events, particularly regarding the proposed
acquisition of UniSource Energy Corporation.
UniSource Energy cautions that actual future
results may vary materially from those expected
or implied in any forward looking statements.
Some of the key factors that could cause actual
results to vary materially from those expressed
or implied include the receipt of required regulatory
approvals, which are significant, and the satisfaction
of other conditions precedent to the consummation
of the transaction, including the approval of
the transaction by the shareholders of UniSource
Energy Corporation, and the availability of
financing of the transaction. There can be no
assurance that such conditions will be satisfied
or that such transaction will be consummated.
More information about the risks and uncertainties
relating to these forward-looking statements
are found in UniSource Energy Corporation's
SEC filings, which are available free of charge
on the SEC's web site at http://www.sec.gov.
UniSource Energy shareholders are urged to
read the proxy statement regarding the proposed
transaction when it becomes available because
it will contain important information. The proxy
statement will be filed with the U.S. Securities
and Exchange Commission by UniSource Energy,
and stockholders may obtain a free copy of the
proxy statement when it becomes available and
other documents filed or furnished by UniSource
Energy with the SEC at the SEC's web site at
www.sec.gov.
The proxy statement and other documents filed
or furnished by UniSource Energy may also be
obtained for free by directing a request to
UniSource Energy at 866-275-4867. Those documents
will be mailed to all UniSource Energy shareholders.
UniSource Energy and its directors and executive
officers may be
deemed to be participants in the solicitation
of proxies from UniSource Energy's shareholders
in favor of the merger. Investors may obtain
a detailed list of names, affiliations and interests
of participants in the solicitation of proxies
of UniSource Energy shareholders to approve
the merger at the following address:
UniSource Energy Tower,
1 S. Church Avenue,
Tucson, AZ 85701.
Shareholders of UniSource Energy may obtain
additional information regarding the
interests of the participants by reading the
proxy statement when it becomes available.
Contacts:
UniSource Energy Corporation
Media Contact:
Steven W. Lynn, 520-884-3629
Financial Analyst Contact:
Jo Smith, 520-884-3650
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