What, the Zen masters might have
asked, is the sound of one-handed
negotiations?
They could get a hint by listening to
the unsolicited offer made by Southern
Nevada Water Authority to buy
Nevada Power, which serves the Las
Vegas area.
Reno-based Sierra Pacific
Resources, which owns Nevada Power,
has taken a straightforward stance: It
told the water authority that the proposal
is absolutely, positively a
non-starter.
In fact, Sierra Pacific's board has said
there's not enough in the water authority's
bid to even justify talking about what
it would take to make it better.
Not surprisingly, that deeply frustrates
officials of the water authority,
who have been trying since August to
get the electric utility to talk.
"We feel it's a very viable offer," said
Vince Alberta, the water authority's
spokesman, last week. "Why wouldn't
they sit down and talk at this point?
What would it hurt to sit down and
discuss the offer?"
Sierra Pacific Resources officials
gave no hint last week, however, that
they were willing to give so much as
the time of day to the water authority.
Although Sierra Pacific Resources is
based in Reno, the water authority's
proposed acquisition of Nevada Power
wouldn't have any direct effects on
Sierra Pacific customers in northern
Nevada.
Sierra Pacific Power which serves
the Reno area operates separately,
and its rates are handled separately
from those of Nevada Power.
Together, the two companies serve
about 843,000 electric customers. In
northern Nevada, Sierra Pacific Power
also has about 110,000 natural-gas customers.
Northern Nevada shareholders in
Sierra Pacific Resources, however, have
a significant stake in the outcome.
Southern Nevada Water Authority
has said its proposal is worth $12 a
share. The water authority said it
would pay $1.2 billion in cash for
Nevada Power and would assume $2.01
billion in debt issued by the utility.
With Sierra Pacific Resources stock
trading at about $6 a share last, the $12
a share offer is an attention-getter.
But that's assuming that the water
authority can come up with the money
an assumption that Sierra Pacific
Resources doubts.
When Walter Higgins, Sierra
Pacific Resources' chairman and chief
executive, told the
water authority on
Sept. 12 that his
directors didn't see
any reason to even
begin talking, Sierra
Pacific Resources
made these arguments:
* The water authority would rely
entirely on debt to make the acquisition
creating a 100 percent leveraged
buyout with no equity.
* Even at that, the water authority
hasn't shown that it has the financing
in place to buy the utility.
* The water authority's annual revenues
are about $70 million; the power
company's revenues are $1.5 billion.
That raises concerns over Southern
Nevada Water Authority's ability to
manage the electric utility even if its
bid were accepted.
The entire proposition, Sierra
Pacific Resources warned, is "highly
risky" for shareholders, customers and
employees alike.
That drew a snort from Morgan
Stanley, which is advising the water
district.
The financial house noted that
Sierra Pacific Resources' debt is graded
by Standard and Poor's as B-, a level
considered to be speculative, while
Southern Nevada Water Authority's
debt is graded AA-.
Thus, Morgan Stanley said, it's
"highly ironic (at best)" for Sierra
Pacific to characterize the deal as risky.
Morgan Stanley noted, too, that the
creation of the Truckee Meadows
Water Authority an agency that
resulted from Sierra Pacific Power's sale
of its water service to a public agency
was funded entirely by debt.
The water agency has committed to
cut Nevada Power's rates by at least
20 percent if it's allowed to buy
Nevada Power.
