EXHIBIT 99.1
For Immediate Release
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SEMPRA ENERGY AND KN ENERGY AGREE TO COMBINE
Creates Preeminent Diversified Energy Services Company
With More Than $20 Billion in Assets
SAN DIEGO and LAKEWOOD, COLO. -- (February 22, 1999) -- Sempra Energy [NYSE:
SRE] and KN Energy, Inc. [NYSE: KNE] today announced that their boards of
directors have unanimously approved a definitive agreement under which Sempra
Energy and KN Energy will combine in a stock-and-cash transaction valued in the
aggregate at $6.0 billion.
The transaction brings together Sempra Energy, with $10 billion in assets and
operations, a strong balance sheet and the largest customer base in its industry
(more than 6 million meters serving 21 million customers), with KN Energy, the
nation's second-largest gas pipeline and storage operator, and the sixth-largest
integrated natural gas company. Capitalization of the combined company will be
approximately $14.3 billion ($7.1 billion in market value of equity; $7.2
billion in debt). Based on 1998 results, the combined company would have
revenues of approximately $9.9 billion, combined assets of more than $20 billion
and more than 15,000 employees.
Under the terms of the agreement, Sempra Energy will acquire all of the shares
of KN Energy for a fixed exchange ratio of 1.115 shares of Sempra Energy common
stock, or $25.00 in cash, for each share of KN Energy common stock. This
represents a blended premium of 24 percent to the market price of KN Energy
common stock, based on the average closing prices of both companies' common
stock over the past week. KN Energy shareholders will have the option to choose
cash or stock, or a combination, subject to pro-ration, such that 70 percent of
the KN Energy shares outstanding will be converted into Sempra Energy stock and
30 percent of the KN Energy shares will be converted into cash.
"This combination creates value for the shareholders of both companies," Richard
D. Farman, chairman and chief executive officer of Sempra Energy, said. "Our
strategic objectives, assets and activities are complementary and will allow the
combined company to aggressively pursue the considerable opportunities of the
energy services marketplace and the convergence of natural gas and electricity.
The strong cash-flow generation from our combined operations can be invested in
the growth opportunities in natural gas and electricity generation that both
companies have been developing. We believe this combination will enhance
shareholder value far faster than either company could have achieved on a
standalone basis. We will have the size, scope, talent, resources and
geographic reach to provide comprehensive integrated energy solutions for
customers."
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"Not only does KN Energy's extensive pipeline system complement our portfolio of
energy related assets, this transaction allows us to increase our penetration in
the energy market triangle that stretches from the Gulf Coast to Chicago and
across the Rockies to California," Farman said. "As the energy markets continue
opening to competition, customer connectivity and economies of scale will be the
critical factors in determining which companies will be the ultimate winners.
We will expand on the largest customer base of any U.S. energy services company
by capitalizing on the attractive growth prospects of both the natural gas and
electric industries."
Stephen L. Baum, vice chairman, president and chief operating officer of Sempra
Energy, said, "This is a breakout strategy that overnight strengthens our
business profile, while dramatically increasing the percentage of revenues and
profits derived from non-state-regulated businesses. Operations outside our
regulated utilities will account for 29 percent of operating cash flow.
Currently, the California utilities comprise 98 percent of our operating cash
flow. We believe that Sempra Energy's earnings growth rate is likely to be
significantly higher following this transaction due to the development potential
of KN Energy's assets."
Farman said, "We anticipate that this transaction will be non-dilutive in the
year 2000 to Sempra Energy shareholders and will enable us to grow earnings at
an accelerated rate as a result of the combination of synergies and growth
opportunities. Earnings growth could additionally be enhanced as the natural
gas and natural gas liquids markets improve."
Larry Hall, chairman and chief executive officer of KN Energy, said, "This
transaction delivers significant value to KN Energy shareholders by combining KN
Energy's growth potential in the natural gas industry with Sempra Energy's
earnings stability, sound financial position and unparalleled customer base. In
addition to providing a compelling geographic extension for the combined
company, this transaction provides a springboard for developing unregulated
businesses around a diversified asset base. This merger transforms our
companies into one of the top players in the energy industry, and positions the
combined company to capitalize on the significant opportunities presented by a
converging marketplace.
"This transaction is particularly attractive in that it enables the combined
company to operate from a position of strength in the area of natural-gas-fired
power generation," Hall continued. "Coupled with Sempra Energy's power
development projects, KN Energy's asset base positions the combined company for
a national presence in gas-fired generation. The added benefits of marketing,
gathering and processing, as well as investments in telecommunications, will
create further value and earnings growth opportunities. In addition, combining
the two companies' wholesale trading operations creates a top-ranked energy
commodity and services provider."
Farman said, "We welcome KN Energy's employees into the Sempra Energy family.
Their expertise and talent, combined with our successful track record, bode well
for the future. We see the fit in culture and people as excellent and are
confident in our ability to work well together to build value for investors and
customers."
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Until the transaction is completed, each company will continue its own dividend
policy. After the combination, KN Energy shareholders will receive Sempra
Energy's dividend on the Sempra Energy shares they receive in the transaction.
Sempra Energy currently pays an indicated annual dividend of $1.56 per share.
While this combination promotes growth and will achieve significant revenue
enhancements, the companies anticipate cost savings of $30 million to $50
million annually that will come from the elimination of duplicate corporate and
administrative programs and greater efficiencies in operations, business
processes and purchasing. The companies will seek to minimize the workforce
effects of the merger through a combination of measures including reduced
hiring, attrition and other appropriate measures.
Richard D. Farman will be chairman and chief executive officer of the combined
company and Stephen L. Baum will be vice chairman, president and chief operating
officer. Three members of KN Energy's board of directors, including Larry Hall,
will join the board of directors of Sempra Energy. Hall will be a senior
advisor to the Office of the Chairman.
"Larry's expertise, advice and counsel will be invaluable as we develop the
opportunities that await the combined company," Farman said.
The name of the combined company will be Sempra Energy with its headquarters
remaining in San Diego.
The merger is conditioned, among other things, upon the approvals of
shareholders of both companies, the Federal Energy Regulatory Commission and the
state utility commissions of Colorado and Wyoming, and clearance under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976. The companies anticipate that
closing will occur in six to eight months.
Sempra Energy is being advised by Goldman, Sachs & Co, which provided a fairness
opinion to Sempra Energy, and the company's legal counsel is Latham & Watkins.
KN Energy is being advised by Merrill Lynch & Co., which provided a fairness
opinion to KN Energy, and the company's legal counsel is Skadden, Arps, Slate,
Meagher & Flom LLP.
KN Energy, Inc., based in Lakewood, Colo., is the nation's sixth-largest
integrated natural gas company with $9 billion in total assets and is the
second-largest pipeline operator with more than 25,000 miles of pipe. It has
3,300 employees and operations in 16 states, including natural gas gathering,
processing, marketing, storage, transportation, energy commodity sales--natural
gas and natural gas liquids; electric generation design, construction and
operation; and innovative services designed for consumers, utilities and
commercial entities. It also jointly owns enable, which markets the Simple
Choice (SM) brand of enhanced products and services for consumers through their
local utilities.
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Sempra Energy, based in San Diego, Calif., is a Fortune 500 energy services
holding company with 12,000 employees, revenues of $5.5 billion and more than 6
million natural gas and electric meters serving 21 million customers. Through
its eight principal subsidiaries Southern California Gas Company, San Diego Gas
& Electric, Sempra Energy Trading, Sempra Energy Solutions, Sempra Energy
International, Sempra Energy Resources, Sempra Energy Utility Ventures and
Sempra Energy Financial Sempra Energy provides a broad range of energy-related
products and services. The company has operations throughout the United States,
Canada, Mexico and other countries in Latin America.
This release contains forward-looking statements within the definition of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Although the
companies believe that these statements are based on reasonable assumptions, it
can give no assurance that their goals will be achieved. The words "estimates,"
"believes," "expects, "anticipates," "plans" and "intends," variations of such
words, and similar expressions are intended to identify forward-looking
statements that involve risk and uncertainty. These statements are necessarily
based upon various assumptions involving judgments with respect to the future
including, among others, the ability to achieve synergies and revenue
enhancements; national, international, regional and local economic, competitive
and regulatory conditions and developments; technological developments; capital
market conditions; inflation rates; interest rates; energy markets; weather
conditions; business and regulatory or legal decisions; the pace of deregulation
of retail natural gas and electricity; the timing and extent of changes in
commodity prices for oil, natural gas, natural gas liquids, electricity and
certain agricultural products; the timing and success of business development
efforts; and other uncertainties, all of which are difficult to predict and many
of which are beyond the control of the companies. Accordingly, while the
Companies believe that the assumptions are reasonable, there can be no assurance
that they will approximate actual experience, or that the expectations will be
realized. Other risk factors are detailed from time to time in the two
companies' SEC reports.
Contacts for Sempra Energy: Contacts for KN Energy:
Media: Media:
Name: Doug Kline Name: Larry Pierce
Phone: (877) 866-2066 Phone: (303) 914-4751
E-Mail: larry_pierce@kne.com
Investors: Investors:
Name: Clem Teng Name: Steven P. Eschbach
Phone: (619) 696-2901 Phone: (303) 763-3618
E-Mail: steve_eschbach@kne.com
Note to Editors: Today's news release, along with other news about Sempra Energy
and KN
Energy, is available on the Internet at http://www.sempra.com and
http://www.kne.com.
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