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Hughes Supply, Inc., Orlando, FL, has entered into a purchase agreement to acquire Southwest Power, Inc. and Western States Electric, Inc., each a large privately owned distributor of electrical utility transmission and distribution (T& D) supplies and equipment in the U.S., and, together, one of the largest T& D distributors focused exclusively on the western and southwestern U.S. and recently, western Canada. Southwest Power, Inc. and Western States Electric, Inc. (SWP/WSE ) share a common private ownership group. Purchase price under the purchase agreement is $123.5 million, payable in cash, subject to post-closing balance sheet adjustments. For the 12 months ended Dec. 31, 2003, SWP/WSE reported revenues of approximately $244 million.
Founded in 1976, SWP/WSE operates 26 branches in 11 states and British Columbia, and provides its 2,100 customers with a complete T& D product offering and comprehensive supply chain management services. Its customers include investor-owned electric utilities (including two of the five largest investor-owned electric utilities in the U.S.), municipal utilities, public utility districts, rural electric cooperative utilities and contractors serving the electric utility industry. Its offerings include almost every T& D product that an electric utility may require, such as pole line hardware, wire and cable, molded rubber and insulating products, connectors, switching equipment and transformers, along with a comprehensive suite of services, including inventory management and logistics, purchasing management and packaging services.
Hughes Supply believes that the maintenance-related nature of the Utilities business, along with its use of multi-year alliance contracts with utility providers, makes it less vulnerable to construction cycles, generating a more predictable cash flow. In addition, its efficient use of capital results in a higher return on invested capital than Hughes Supply's overall return, making Utilities an excellent business with very good underlying fundamentals and long-term growth prospects.
"The acquisitions of Southwest Power and Western States Electric will strategically expand our Utilities business to the west and southwest regions of the U.S. and western Canada, creating one of the largest T& D distributors in the U.S. and expanding Hughes towards a national platform for continued growth," said Tom Morgan, president and CEO of Hughes Supply, Inc. "Their success in establishing and growing alliance relationships with utility providers has made them a leader in this area. With this proposed acquisition, we continue to execute our strategy of investing in businesses that are market leaders, improve our overall profitability, and reduce our cyclicality, while expanding our geographic footprint.
"In addition to their complementary geographic presence, Southwest Power's and Western States Electric's industry reputations for innovation and quality of service is well-aligned with that of Hughes. They have excellent management teams leading these businesses and we look forward to their continued leadership and having them join the Hughes Supply family."
Share & Debt Offerings
Hughes Supply also announced a public offering, subject to market and other conditions, of four million shares of its common stock by the company and 300,000 shares by a trust of which David H. Hughes, chairman of the company, is trustee and beneficiary, under the Company's existing $700 million universal shelf registration statement. Lehman Brothers is acting as the bookrunner for the offering. Citigroup and Goldman, Sachs & Co. are serving as joint lead managers, and Wachovia Securities is serving as co-manager. Hughes Supply has granted the underwriters a 30-day option to purchase up to 645,000 additional shares to cover over-allotments.
Hughes Supply also announced that it intends to offer in a private placement,