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El Paso to buy Coastal
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January 18, 2000: 3:06 p.m. ET
Fast-growing natural-gas company buys oil, gas, electricity firm for $16 billion
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NEW YORK (CNNfn) - El Paso Energy Corp., owner of the largest natural-gas pipeline in the United States, agreed Tuesday to purchase oil and gas company Coastal Corp. for about $16 billion in stock and assumed debt.
The deal, which is the latest in El Paso's rapid acquisition pace, would make El Paso a world leader in the transmission of natural gas, with more than 58,000 miles of pipeline. But it would also widen El Paso's product slate, bringing in Coastal's chemicals, coal, oil and power-generation businesses.
Combined, the two Houston-based companies would have more than $18 billion in annual revenue and more than 18,000 employees worldwide.
Under the deal, shareholders of Coastal (CGP) will receive 1.23 shares of El Paso (EPG) stock for every Coastal share they hold. Based on Friday's closing price for El Paso shares at 37-1/8, El Paso is offering $45.66 per share, for a 27 percent premium on Coastal stock from its Friday close at 36.
In afternoon trading Tuesday, Coastal rose 3 3/8 to 39-3/8, while El Paso fell 1-15/16 to 35-3/16.
Fast-growing El Paso, which was spun off from Burlington Resources in 1992, has been bulking up. It bought Tenneco Inc.'s pipeline business in 1996 for $4 billion and last year acquired Sonat Inc. for $6 billion in stock and assumed debt.
The deal, which is expected to close in the fourth quarter of 2000, is anticipated to be tax free to shareholders and will be accounted for as a pooling of interests.
El Paso said it expects the deal to immediately boost its earnings per share, contributing more than 5 percent to its per-share earnings in both 2001 and 2002.
The combined company would be the second-largest gatherer of natural gas in the United States and would rank third in the nation, after BP Amoco (BPA) and Exxon Mobil Corp. (XOM), as a producer of natural gas with over 5 trillion cubic feet of proved gas equivalent reserves, the company said.
"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," said William Wise, president and chief executive of El Paso Energy.
Wise will also take the post of chairman when Ronald Kuehn steps down on Dec. 31, 2000. David Arledge, Coastal's chairman, CEO and president, will become vice chairman.
The merger is subject to approval of stockholders of both companies and requires certain governmental approvals.
Donaldson, Lufkin & Jenrette is El Paso Energy's financial advisor; Merrill Lynch is advising Coastal. 
-- from staff and wire reports
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