UniSource value on market called
low
The assertion about TEP's parent firm comes from UniSource's
suitor.
DAVID PITTMAN
Officials from Saguaro - which includes the deep-pocket firms of JP Morgan Partners; Wachovia; and Kohlberg, Kravis & Roberts - sang the praises of TEP and its top management last night at a hearing in Tucson before the Arizona Corporation Commission, which must approve the sale.
"UniSource was undervalued in the market," said Scott Stuart of KKR. "Why was it undervalued? Because today's market undervalues small cap companies and only looks at the short term."
KKR is a firm that invests the money of its customers, primarily state pension funds. Stuart said his company is interested in UniSource as a long-range investment.
Saguaro wants to acquire UniSource for $3 billion, or $25.25 per share. Jim Pignatelli, president and chief executive of UniSource, said his company did a market study and found other potential buyers, but not at that price.
Officials from the investment group hoping to buy UniSource said they will take a hands-off approach to the company.
"If there were not a good management team in place, we would not be making this investment," Stuart said. "We do not get involved in the day-to-day operation of our companies. Each of our companies stand alone."
In other testimony yesterday, Pignatelli, 61, said he has an agreement with those hoping to buy UniSource to stay at the helm for at least five more years.
"My contract will specify that I perform the same duties and responsibilities as I do now," he said.
Pignatelli said the purchase would give UniSource greater financial strength.
"It will give us more security and broader financing than we have now," he said. "These investors provide us with broader access to capital markets."
If the commission approves the sale, UniSource is committed to investing $1.5 billion in operations and management from 2005 to 2009 and pay down $400 million in debt by 2008.
Commission staff opposed the sale in earlier reports, saying the deal could financially weaken UniSource's electricity operations.
If the new ownership does as it says and leaves UniSource management alone and doesn't pillage the company of profits, how will it make money? Stuart said the investment would be much like the one the typical family makes when it buys a home.
"We will take Jim Pignatelli's management plans and put our resources on top of it," he said. "We will maintain and expand the company and pay down debt and increase the value of the company over a long period of time."
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