Friday, Aug. 23, 2002 | 11:15 a.m.
Hours after the Southern Nevada Water Authority board approved a preliminary offer of $3.2 billion to buy Nevada Power, the parent company repeated what has become a virtual mantra: The company is not for sale.
But Sierra Pacific Resources President Walt Higgins gave the company and its board some wiggle room.
"Neither Sierra Pacific Resources nor Nevada Power Co. are for sale," he said Thursday afternoon. "However, I can assure you that we will give careful consideration to any offer made by SNWA. Our evaluation will be based on what is in the best interests of our shareholders, our customers, our employees and the community."
The water authority Thursday authorized its own chief executive, Pat Mulroy, to make the offer. The $3.2 billion price includes $1.2 billion for the Nevada Power assets and $2 billion to cover the debt incurred by the utility, consultants with Morgan Stanley & Co. said at the water authority meeting.
The board authorized the offer after the consultants said their preliminary analysis, based on publicly available information, showed power consumers in Southern Nevada could immediately shave 20 percent off their electric bills if the water authority took over the power utility.
Mulroy said after the authorization that she would like to make the formal offer to the power company as soon as today. The water authority offer could be revised after detailed examination of Nevada Power and Sierra Pacific's books.
Higgins did not appear to be eager to open those books for a detailed look. He said the company needs details of its own -- the specifics of the water authority offer -- before the company can discuss the sale.
"At this point, we know only what was contained in Morgan Stanley & Co.'s public presentation to the SNWA board," he said in a prepared statement. "That presentation did not go into great detail regarding the basic assumptions behind their analyses or the nature of any possible transaction, to it would be inappropriate for me to speculate on those.
"At this point, I am uncertain as to when of how the offer might be extended," Higgins said. "Since this is a very complex issue, it will require a careful, detailed analysis of any material presented to us and I cannot predict how long such analysis might take."
Higgins said it could be four to eight weeks before both sides understand what the offer actually means.
After Nevada Power's woes this spring, the water agency hired Morgan Stanley and began formally exploring buying the utility. Nevada Power asked for more than $900 million in rate hikes to defray the cost of electricity used during the power crisis last year. The state Public Utilities Commission turned down the bulk of that request, and the company lost investment-grade credit ratings.
"This could be a political concoction to avoid embarrassing the Nevada Public Utilities Commission," Gregory Phelps, who manages $1.1 billion in the John Hancock Patriot Funds, including Sierra Pacific shares, told Bloomberg News. "On the other hand, it would get rid of Sierra Pacific's biggest headache."
The Morgan Stanley consultants outlined what should be in the offer, which should get to Sierra Pacific executives today. The offer would include information including the bid price of $3.2 billion; an overview of the sale rationale, including potential savings to customers and benefits to the local economy and Sierra Pacific shareholders; a description of what steps are needed to consummate the deal; and discussion of the legal authority to buy the utility and how the water authority would finance the deal.
Richard Wimmer, water authority deputy general manager, said that information should be enough to bring Sierra Pacific executives to the bargaining table and provide detailed information that the water authority needs before it can close the deal.
"That should be enough for them to open their books," Wimmer said.
Higgins, however, hinted that the offer might not be enough. He said the company has not made a recent assessment of the value of Nevada Power "because we are not for sale."
The Sierra Pacific executive said the value of the Nevada Power assets would not necessarily dictate the price if any sale is to happen.
"What one might pay for an institution does not directly relate to what a company is worth in a market," he said.
The offer, if accepted, would pump about $12 per share into Sierra Pacific, which has gone up in value more than 25 percent this week, closing Thursday at $7.85.
But the water authority isn't interested in buying Sierra Pacific shares -- it wants the two-thirds of the company that are the assets of Nevada Power.
Wimmer said Sierra Pacific's leadership could do whatever it wanted with the cash -- turn it over to shareholders, use it to pare debt or buy back stock, or any other purpose.
He said the "$12 per share" information distributed by the water authority and its consultants serves to give a relative idea of the value of the offer.
Some of the observers at the water authority board meeting Thursday morning also had problems with the preliminary offer to Sierra Pacific.
John Baietti, a local grill owner and strident Nevada Power critic, said the water authority should lower its offer. He said cutting the offering price would save the authority money, and mean that power customers would ultimately pay cheaper rates.
Baietti said he would like to see another 20 percent lopped off the rates, for a total reduction of 40 percent.
But Mulroy and the authority's consultants called the $3.2 billion offer fair -- and also characterized the offer as one that might win the support of the Sierra Pacific board of directors.
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