Will SCANA move to merge or invite a buyout?
By John Temple Ligon
Temple@TheColumbiaStar.com

Are SCANA and Duke poles apart?

In the range of shareholder- owned utilities in the U.S., Columbia's SCANA is obtainable. But is it available? For how much? In Europe, utilities are merging into extraordinary operations offering the customer economies of scale. Germany's power company Eon started a merger with Spain's Endesa a year ago in a deal worth more than $70 billion.

If SCANA were to consider a friendly merger, a connection with Charlotte- based Duke is always possible, particularly since last year's ending of the federal law preventing mergers between contiguous utility companies. With assets worth almost $69 billion, Duke Energy is America's largest utility.

In the U.S., instead of utility mergers, buyouts by private equity firms are the current rage. Borrowing money to buy shareholder- owned companies during the present time of low interest rates makes sense. The interest payments are deductible, while dividends to shareholders are not. Pittsburgh's Duquesne, with an electricity customer base about the same size as SCANA's, was bought out last year.

Private equity firms Kohlberg Kravis Roberts and Texas Pacific Group last month moved on Dallas- based utility TXU for $45 billion, the largest buyout of all time. On the day of the move, the shareholders were being offered a buyout with a 25% premium over their share price. Since then, while TXU is taking 50 days to find better offers, the stock has risen. Starting from a low of $5.44 in 2002, a share of TXU stock last week was worth almost the $69.25 all- cash offer tabled by KKR and TPG. Now it's down a bit to about $65.

With 2.1 million electricity customers in Texas and assets of almost $26 billion, TXU is the largest utility in Texas, where the governor says the buyout is good for Texas. The KKR and TPG buyout price of $45 billion includes roughly $33 billion plus the assumption of around $12 billion in debt.

SCANA has 617,000 electricity customers in South Carolina and almost $10 billion in assets. A buyout offer for SCANA would likely carry a premium somewhere between the 25% offered to TXU shareholders and the 21% paid last fall by Australia's Macquarie Bank in a buyout of Pittsburgh's Duquesne.

SCANA's share price is approaching $42, while its low in 2002 was about $27 when TXU's share price was $5.44. A buyout price per share for SCANA could easily move to more than $52, based on the TXU business. But also based on the TXU business is the optimism inferred from a TXU share price rise from $5.44 in 2002 to a buyout price of $69.25.

For the near term, most likely, very little will happen at SCANA, nothing earth- shaking. The slow deliberate process for a sale or a merger, though, has been under way for several years. First, according to a law from the 1930s, SCANA had to unload the bus system in order to be taken over by an out- of- state firm. It did in 2002 while the City of Columbia also agreed to a 30- year extension to SCANA's monopoly franchise. Then SCANA had to bring the Lake Murray Dam up to federal seismic standards. And the federal government had to lift its restriction against mergers between contiguous power companies.

A few years ago, the CEO at SCANA moved his residence to Charlotte, home of Duke Energy. The SCANA company headquarters is in the process of moving out of downtown Columbia and into its own building on its own property on I- 77 in Lexington County, SCANA's likely energy growth market after retail deregulation, which is headed here as it is in the rest of the country. Meanwhile, Columbia is already locked in as a SCANA customer for another 25 years.

By locating back from the interstate, SCANA can be its own commercial office development anchor as it further develops the property along the interstate. Duke's real estate arm, Crescent, did so well it was spun off as a separate operation.

Duke also recently spun off its natural gas business into a separate Houston- based shareholder- owned company. Duke is closer to an electric power pure play now, probably looking for electric power expansion opportunities.

Judging from both the merger environment and the current buyout season, it's a good time to call your broker.