The Portland Tribune, March 7, 2003

City gets cold feet over PGE bidding
Wannabe utility buyers must top Texas Pacific offer by $50 million

BY KRISTINA BRENNEMAN
The Tribune

The city has all but shut the door on challenging Texas Pacific Group's $2.35 billion bid to acquire Portland General Electric.

City Commissioner Erik Sten said Wednesday that "given the political climate and difficulties of that process," it's highly unlikely the city will top the bid for the utility, a subsidiary of the bankrupt Enron Corp.

Getting into a bidding war in federal bankruptcy court "is not a wise move by us," he said. "I'm not convinced we can win a court fight against these types of economic interests. I'm not positive we have enough firepower to tackle this."

However, Sten and Mayor Vera Katz's office say they will keep the door ajar if the Texas Pacific bid fails to pass muster with the bankruptcy court or is topped by another less suitable buyer.

The court has a 60-day timeline for considering other bids. The Texas Pacific deal also requires six federal and state regulatory approvals.

Katz spokesman Scott Farris said that "if the TPG bid pans out, we would not get into a bidding war." He said city officials -- thwarted several times by the bankrupt Enron team -- are still reviewing the Texas Pacific proposal and how it would affect Oregonians.

Texas Pacific executives blitzed through town last week to promote the purchase and to sketch an outline of Oregon Electric Utility Co. LLC, the holding company created to acquire PGE. Oregon Electric's general partners are former Gov. Neil Goldschmidt, developer and former TriMet General Manager Tom Walsh, and Gerald Grinstein, a Seattle venture capitalist who will become chief executive officer of Delta Air Lines on Jan. 1.

Goldschmidt will be chairman of PGE's board if the acquisition is completed, which Enron estimated would take a year to 18 months.

U.S. Bankruptcy Judge Arthur Gonzalez has scheduled a Thursday hearing to discuss the PGE deal and the procedure for other rival bidders, if there are any.

As proposed, new bids are due to Enron lawyers by Jan. 28. The offers must be accompanied by a $20.5 million deposit, or 1.5 percent of the purchase price, which is refunded if a deal does not happen.

Texas Pacific paid a similar deposit to Enron of $20.5 million, said spokesman Owen Blicksilver. The deposit was not designed to eliminate any one bidder but as a test of a bidder's seriousness, said Enron spokesman Mark Palmer.

"We invite all bidders," Palmer said. "We hope there are others, for the sake of the estate, but we'll take what the process delivers."

Although such deposits are routine, Sten said the bidding war favored private bidders over public bidders, such as the city.

Commissioner Randy Leonard said the city wouldn't have political support to go through a bid for PGE now.

"I've been pretty clear about the city being able to intervene unless there was a responsible purchaser," he said. "We do have a responsible purchaser."

Bidders can submit a letter of credit rather than cash. Blicksilver said he won't speculate on whether other bidders "would materialize. Oregon Electric is offering a full and fair price for PGE."

The first competing bid must be at least $50 million higher than Texas Pacific's $2.35 billion offer. Opening bids in bankruptcy court are typically based on the value of the asset. Subsequent bids must be $10 million higher than the previous one. Enron management and its creditors will review competing bids and select a winning bid or distribute shares to creditors at a sales hearing Feb. 5.

If a competing buyer is selected, Texas Pacific would receive a $31.25 million "breakout" fee from PGE's new owner, said Tom Imeson, a spokesman for the proposed Oregon Electric. The amount is included in the $50 million overbid.

The so-called breakout fee -- a common practice to cover the expense of pursuing an asset --was outlined in an Enron filing Monday in U.S. Bankruptcy Court in New York City. NW Natural received a similar payment when its proposed merger with PGE collapsed last year.

Contact Kristina Brenneman at kbrenneman@portlandtribune.com