Enron sale of Portland General Electric important catalyst for stock

Investors reacted positively to Enron's announcement that it sealed a deal to sell utility Portland General Electric for almost $ 1.9 bn.
"It's definitely an important catalyst for the stock," said Raymond Niles, an analyst who follows Enron for Salomon Smith Barney. Northwest Natural Gas agreed to buy Portland General from the Houston-based energy trader, which has been trying to sell the utility for months.
Under the deal, Enron is to receive $ 1.55 bn in cash, $ 200 mm in NW Natural preferred stock and $ 50 mm in NW Natural common stock. NW Natural will take over Enron's $ 75 mm balance toward consumer rate cuts Enron agreed to when it bought Portland General in 1997.
In addition, NW Natural, based in Portland, Oregon, will assume about $ 1.1 bn in Portland General debt and preferred stock. The common equity stake in NW Natural will give Enron voting rights limited to 4.9 %. Enron, which has agreed to hold its securities in NW Natural for at least 2 1/2 years, also will receive up totwo board seats.

The deal, subject to regulatory approvals, is expected to close by the fourth quarter of 2002. It's the second time Enron reached a deal to sell Portland General. Nevada-based Sierra Pacific Resources agreed to buy the utility in November 1999.
The deal, valued at about $ 2 bn plus assumption of $ 1.1 bn debt and preferred stock, was officially called off in April, although it had been considered dead months before. Sierra Pacific planned to sell some of its Nevada assets to raise cash for the deal, but Nevada's move to electricity deregulation was delayed and Sierra couldn't carry out the sales.
NW Natural is Oregon's largest natural gas utility, with more than 525,000 customers in northwest Oregon and southwest Washington. Portland General serves more than 730,000 customers and owns 2,015 MW of electricity generation. Enron is moving away from owning large physical assets so it can focus on trading and making markets in a variety of commodities.
"This sale is consistent with our overall objective of selling assets that are not strategic to our wholesale and retail energy business," Ken Lay, Enron's chairman and CEO, said in a statement. Enron bought the utility in 1997 in a deal worth $ 2 bn, plus it assumed $ 1.1 bn in debt and preferred stock.

The NW Natural deal represents "a break-even transaction from a gain-loss standpoint," Enron spokeswoman Karen Denne said. Enron could use the proceeds to pay down debt, repurchase stock or invest in the company's high-growth businesses, she said.
Enron, when the deal gets closer to completion, must assure investors that the money will be invested in a higher-return opportunity to avoid earnings dilution, said Carol Coale, an analyst with Prudential Securities in Houston. Investor confidence in Enron suffered after CEO Jeff Skilling, citing personal reasons, unexpectedly resigned in August. Even before then, Enron's stock had come under pressure for a variety of reasons.
The Portland General deal "should add one notch in management's credibility belt," Coale said, adding: "They have several notches to go."