Edison International on Monday announced the sale of power plants in Britain for less than half of what the power company paid for the facilities two years ago.
Edison Mission Energy, the Irvine-based subsidiary of Edison International, will sell the Fiddler's Ferry and Ferrybridge coal-fired plants to American Electric Power Co. of Columbus, Ohio, for $960 million. Edison Mission purchased the plants, which have generating capacity of 4,000 megawatts, for $2 billion in 1999, or about $500 per kilowatt.
"Edison Mission clearly paid way too much money for those plants," said Paul Patterson, a utility analyst at ABN Amro in New York.
The company will take a $1.2-billion after-tax write-off on the transaction, after accounting for its losses on the sale and currency translations. The deal is expected to close by year-end.
FOR THE RECORD
Los Angeles Times Friday October 12, 2001 Home Edition Part A Part A Page 2 A2 Desk 2 inches; 60 words Type of Material: Correction
Edison Mission Energy--A Business story Tuesday on the sale of power plants by Edison Mission Energy implied that the company borrowed $385 million and sold $800 million in high-interest bonds to help keep its parent, Edison International, solvent. Although both transactions were secured by Edison Mission stock, another Edison subsidiary, Mission Energy Holding, was the source of the bond issue and the borrower of the loan.
Edison officials were relieved to disentangle themselves from the investment in the British electrical market.
"This investment has been a major disappointment for" Edison Mission, said Al Fohrer, Edison Mission's president and chief executive.
"While the plants have run well, given the market conditions, the operating losses and cash requirements likely to result in the foreseeable future from the existing debt structure were too large to maintain our ownership position," he said in a statement. "It is time to sell the plants, reduce our debt and eliminate the drag on our financial performance."
Though Edison is taking a giant hit on the transaction, executives at American Electric are crowing about the deal.
"We are paying approximately $200 per kilowatt for these assets, which is an attractive price based on current market conditions" in Britain, said Hank Jones, senior vice president with American Electric's AEP Energy Services unit.
Moreover, the purchase will provide an immediate boost to American Electric's earnings, adding about 6 cents a share in 2002, the company said.
But Patterson noted that the plants are old, and that there is some risk in estimating how many years they will operate. Still, it will be much easier for American Electric to make a profit than Edison Mission because the purchase price is much lower.
American Electric shares closed down 88 cents at $45.87 on the New York Stock Exchange.
Shares of Rosemead-based Edison International also dipped, down 41 cents to close at $15.52.
Fohrer said the disposal of the plants will improve Edison Mission's credit quality and earnings potential.
"Our other 1999 acquisitions--in Pennsylvania, Illinois and New Zealand--are all performing well," he said.
Edison Mission also said it has contracts to sell its interest in seven domestic power plants, deals that will generate net proceeds of $460 million.
Edison Mission is laboring under a mountain of debt used to help Edison International avoid bankruptcy earlier this year. In June, it sold $800 million in bonds carrying a yield of 14%, about double what a more credit-worthy company would have paid to raise a similar amount of funds at that time.
It also obtained a $385-million bank loan at the same time. Combined, the moves allowed Edison International to pay about $1 billion of its debt that had come due.
Separately, Edison Mission has lined up a new $750-million credit line.