El Paso Corp. (ticker: EP, exchange: New York Stock Exchange (.N))
News Release -
El Paso Energy Corporation and The Coastal Corporation Announce Merger Agreement
Houston, Texas, January 18, 2000—El Paso Energy Corporation (NYSE:EPG) and The Coastal Corporation (NYSE:CGP) announced
today the execution of definitive agreements for the merger of El Paso Energy and Coastal.
The total value of the transaction is approximately $16 billion, including $6 billion of
assumed debt and preferred equity. Each share of Coastal common stock and Class A common
stock will be converted on a tax-free basis into 1.23 shares of El Paso Energy common
stock. The outstanding convertible preferred stock of Coastal will be exchanged for El
Paso Energy common stock on the same basis as if the preferred stock had been converted
into Coastal common stock immediately prior to the merger. It is expected that the merger
will be completed during the fourth quarter of 2000 and be accounted for as a pooling of
interests. The total enterprise value of the combined company will exceed $32 billion,
with an equity value of approximately $19 billion.
Ronald L. Kuehn, Jr., chairman of El Paso Energy Corporation, said, "This exciting
combination of two strong companies will create a world-scale, integrated gas and power
company which will clearly benefit from the convergence of these two industries."
"The merger is expected to be accretive to El Paso's earnings per share
immediately and add more than five percent to EPS in both 2001 and 2002," said
William A. Wise, president and chief executive officer of El Paso Energy. "With this
merger, El Paso Energy will become the only company that is one of the top five companies
in every sector of the wholesale natural gas and power arena, including natural gas
transmission, production, gathering and processing, marketing, and power generation. As
power generation becomes the largest consumer of natural gas, we believe integration along
the full value chain will enhance profitability in each segment of our business."
"Coastal's growth strategies are in place to deliver double-digit earnings
growth for the next several years," said David A. Arledge, chairman, president, and
chief executive officer of The Coastal Corporation. "This transaction will provide
the foundation of assets, personnel and financial strength to accelerate this growth and
create a truly unique company which is a major player in all aspects of the converging
North American natural gas and power markets."
Mr. Wise added, "Our two companies complement each other in strategically
compelling ways. El Paso Energy's coast-to-coast pipeline system reaches from the
west coast to the southeastern United States and then moves upward along the eastern
seaboard to key markets in the Northeast; Coastal's ANR pipeline system covers
strategic areas across the Midwest and Great Lakes regions, and its Colorado Interstate
Gas system traverses the Rockies. The combined interstate transmission system of the new
company will consist of over 58,000 miles of pipeline reaching all the major growth areas
in the country, accessing every key supply source in North America, and moving more gas
than any other energy company in the world. The combined company will be the second
largest gatherer of natural gas in the United States and the third largest U.S. producer
of natural gas—after BP Amoco and ExxonMobil—with over 5 trillion cubic feet of
proved gas equivalent reserves. Together the companies control over 12,000 net megawatts
of power generation worldwide. This breakout move assures greater growth opportunities for
each of our business units.
"This merger is consistent with the strategy we have had in place for the past
five years. We have acquired strategic assets, combined them efficiently, enhanced their
presence in the marketplace, effectively managed commodity volatility, and utilized our
expanded platform to develop new growth opportunities," Mr. Wise said. "Our
track record of successfully combining and operating large energy organizations is second
to none. After today's announcement, we will begin immediately assembling transition
teams with key personnel from both organizations. This process has proven effective in our
previous mergers, ensuring that we capture the best ideas, practices, and personnel from
each organization and achieve a smooth transition to a single organization immediately
upon closing. We expect to realize at least $200 million in cost savings annually when the
two companies are merged into one.
"We believe the increased size, scope, and scale of the combined company will
enhance our ability to continue delivering double-digit earnings growth and provide
additional opportunities in the telecommunications and power transmission arenas. The
58,000 mile pipeline system will access over 70 percent of the U.S. population and provide
secure, readily available pathways for data, voice, and power transmission," Mr. Wise
The combined company will be headquartered in Houston, Texas.
Ronald L. Kuehn, Jr. will remain chairman of the board of El Paso Energy
Corporation until December 31, 2000. At that time, William A. Wise—the
current president and chief executive officer of El Paso Energy—will assume the
position of chairman in addition to continuing as president and chief executive officer of
the new combined company. David A. Arledge, who is currently the chairman,
president, and chief executive officer of The Coastal Corporation, will become the vice
chairman and will oversee the non-regulated operations of the combined company. The Board
of Directors for the combined company will consist of twelve directors—seven
designated by El Paso Energy and five designated by Coastal.
The merger is subject to customary conditions, including approval by the stockholders
of both companies and receipt of certain required governmental approvals. The merger
agreement includes customary and reciprocal provisions regarding stock options,
non-solicitation, termination fees, and expense reimbursements.
Donaldson, Lufkin & Jenrette Securities Corporation is acting as El Paso
Energy's financial advisor for the transaction, while Merrill Lynch & Co. is
advisor to The Coastal Corporation. The law firm of Fried, Frank, Harris, Shriver &
Jacobson is El Paso Energy's legal advisor, and Coastal is represented by the law
firm of Skadden, Arps, Slate, Meagher & Flom, LLP.
With over $16 billion in assets, El Paso Energy Corporation provides comprehensive
energy solutions through its strategic business units: El Paso Natural Gas Company,
Tennessee Gas Pipeline Company, Southern Natural Gas Company, El Paso Field Services
Company, El Paso Merchant Energy Company, El Paso Production Company, and El Paso Energy
International Company. The company owns North America's largest natural gas pipeline
system, both in terms of throughput and miles of pipeline, and has operations in natural
gas transmission, gas gathering and processing, gas and oil production, power generation,
merchant energy services, and international project development. Visit El Paso
Energy's web site at www.epenergy.com.
The Coastal Corporation is a Houston-based energy holding company with consolidated
assets of more than $14 billion and subsidiary operations in natural gas transmission,
storage, gathering/processing and marketing; oil and gas exploration and production;
petroleum refining, marketing and distribution; chemicals; power production; and coal.
Coastal's World Wide Web site at www.coastalcorp.com provides additional information on
The Coastal Corporation Media Relations Contact
The Coastal Corporation Investor Relations Contact
Stirling D. Pack
This release includes forward-looking statements and projections, made in
reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The companies have made every reasonable effort to ensure that the information and
assumptions on which these statements and projections are based are current, reasonable,
and complete. However, a variety of factors could cause actual results to differ
materially from the projections, anticipated results or other expectations expressed in
this release, including, without limitation, oil and gas prices; general economic and
weather conditions in geographic regions or markets served by El Paso Energy and The
Coastal Corporation and their affiliates, or where operations of the companies and their
affiliates are located; inability to realize anticipated synergies and cost savings on a
timely basis; difficulty in integration of operations; and competition. While the
companies make these statements and projections in good faith, neither company nor their
managements can guarantee that the anticipated future results will be achieved. Reference
should be made to the companies' (and their affiliates') Securities and Exchange
Commission (SEC) filings for additional important factors that may affect actual results.
Investors are urged to read the proxy statement/prospectus which will be included
in the Registration Statement on Form S-4 to be filed with the SEC in connection with the
proposed merger because it will contain important information. After it is cleared with
the SEC, the proxy statement/prospectus will be available free of charge on the SEC's
web site (www.sec.gov), from El Paso Energy Corporation's office of Investor
Relations, and from Coastal's Corporate Secretary. In addition, the identity of the
people who, under SEC rules, may be considered "participants in the
solicitation" of El Paso Energy shareholders in connection with the proposed merger,
and a description of their interests, is available in an SEC filing under Schedule 14A
made by El Paso Energy Corporation on January 18, 2000.