TECO Energy (NYSE:TE) announced Sept. 21 that it has closed the sale of its coal mining subsidiary, TECO Coal LLC, to Cambrian Coal Corp., a Booth Energy company.
The sales agreement did not provide for an up-front purchase payment, but does include future contingent consideration of $60 million if certain coal benchmark prices reach certain levels over the next five years. TECO Energy said it retains certain personnel related liabilities, but all other TECO Coal liabilities were transferred in the transaction. The retained liabilities included pension liability, which was fully funded at June 30, 2015, and severance agreements, which were accrued at June 30, 2015.
TECO Energy Chief Executive Officer John Ramil said: “The closing of this sale results in a complete exit from the coal mining business. TECO Coal was an important component of TECO Energy’s business mix since the mid-1970s, contributing strong earnings and cash flow for many years. We appreciate the dedicated team members at TECO Coal and the contributions they have made to TECO Energy’s success.”
Booth Energy is controlled by coal operator Jim Booth, a long-time veteran of the Central Appalachia coal industry, where the TECO Coal operations are located.
In the third quarter of 2014, TECO Coal was classified as an asset held for sale, and its operating results have been reported as discontinued operations since that time. In addition, through June 30, 2015, TECO Energy has recorded non-cash valuation adjustments of approximately $128 million, after tax, to the carrying value of TECO Coal, and expects that any final closing adjustments will not be material. In the third quarter of 2015, TECO Coal will record a previously disclosed charge in discontinued operations of approximately $8 million, after-tax, related to black lung liabilities.
J.P. Morgan Securities LLC acted as TECO Energy’s financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP acted as its legal advisor.
TECO Energy is an energy-related holding company with regulated electric and gas utilities in Florida and New Mexico. Tampa Electric serves more than 700,000 customers in West Central Florida; Peoples Gas System serves more than 350,000 customers across Florida; and New Mexico Gas Co. serves more than 510,000 customers across New Mexico.
Canada-based Emera Inc. (TSX: EMA) announced Sept. 4 that it has worked out a deal to acquire TECO Energy, and said at the time that it supported the ongoing sale effort for TECO Coal.
In an Aug. 5 quarterly Form 10-Q filing at the SEC, TECO Energy said about the sale process for TECO Coal: “On Oct. 17, 2014, TECO Diversified entered into [a stock purchase agreement] to sell all of its ownership interest in TECO Coal to Cambrian Coal Corporation. On Feb. 5, 2015, the SPA was amended to extend the closing date to Mar. 13, 2015 and modify the purchase price to $80 million, subject to working capital adjustments, plus contingent payments of up to $60 million that may be paid between 2015 and 2019 depending on specified coal benchmark prices. In 2014, the company recorded impairment charges totaling $115.9 million pretax to write down the held-for-sale TECO Coal assets to their implied fair value based on the price per the amended SPA less estimated costs to sell.
“On Mar. 12, 2015, the SPA was further amended to extend the closing date to Apr. 24, 2015. On Apr. 17, 2015, the SPA was amended again to further extend the closing date to June 5, 2015. The closing did not occur on June 5, 2015, and the SPA was not terminated by either party. Management continues to be in active discussions with interested parties in an effort to complete the sale; however, based on management’s assessment of current market conditions and the discussions with interested parties, an additional impairment charge of $78.6 million pretax was recorded in the second quarter of 2015, which includes the estimated selling costs associated with this transaction.”
Like other U.S. coal producers, TECO Coal has been hit by poor markets and numerous customer power plant closings. TECO Coal’s full-year loss from operations in 2014 was $5.6 million on sales of 5.5 million tons, compared with net income of $9 million on 5.8 million tons sold in the 2013 period.
The Booth Energy website says: “Booth Energy produces coal using the underground and surface mining methods. We mine primarily in the central Appalachia coal fields of Kentucky, West Virginia and Virginia. We employ 1400 members within the Booth Energy Group. We market our coal to various utilities, including Detroit Edison, Progress Energy, American Electric Power, Virginia Electric Power and Georgia Power. We market our coal by Norfolk Southern Rail, CSX Railroad, via truck to the Big Sandy AEP Plant and via barge on the Big Sandy River through our Wayne County River Terminal. The Booth Energy Group produces and ships 7.0 million tons annually to domestic and export markets.”
As an example of power plant closings, AEP recently shut an 800-MW unit at the Big Sandy plant for clean-air reasons and is converting the other Big Sandy coal unit to burn natural gas.