PNM Buys Rival Electricity Producer

PNM Resources Inc., an energy holding company, said yesterday that it had agreed to buy TNP Enterprises Inc. for $189 million in cash and stock, more than doubling its customer base in the fast-growing Southwest United States.

The deal will give PNM, based in Albuquerque, more than one million electric and gas customers and annual revenue of $2.3 billion. It also bolsters the company's earnings stream from its more predictable regulated utility operations, which will generate about 72 percent of the combined company's earnings before interest, taxes, depreciation and amortization after the deal closes.

"We are trying to build a multi-market penetration in attractive Southwestern states and this transaction certainly fits the bill," Jeffry E. Sterba, chairman, president and chief executive of PNM Resources, said in an interview.

PNM, which operates the Public Service Company of New Mexico, said the deal would add at least 10 percent to its annual earnings per share and 20 percent to its free cash flow in the first full year after closing.

TNP, based in Fort Worth, owns the Texas-New Mexico Power Company, which provides electric service to 85 cities and 252,000 customers in Texas and New Mexico, and First Choice, an unregulated retail electric provider with more than 230,000 customers in Texas.

Terms of the transaction call for PNM to exchange about 4.7 shares of its stock for each share in the privately held TNP, with the remaining purchase price being paid in cash. PNM shares closed at $20.51 Friday on the New York Stock Exchange. The agreement also calls for PNM to assume about $835 million in TNP debt and senior preferred securities, giving the deal an enterprise value of more than $1 billion.

PNM said it had arranged to issue $250 million in common equity, $200 million in equity-linked securities and $100 million in long-term debt to help finance the transaction. PNM Resources said it intended to either retire or refinance $385 million of TNP Enterprises debt, redeem the company's preferred securities and issue approximately $100 million of long-term debt at PNM Resources. Combined, that should reduce its net long-term debt and preferred by about $500 million.

As a result, PNM expects to realize increased financial flexibility and net interest savings of approximately $40 million at TNP Enterprises, the unregulated holding company of TNMP and First Choice.