Chase Manhattan Corp., Merrill Lynch & Co., and Lehman Brothers Inc. have committed themselves to lend Texas Utilities Co. $10 billion if it wins the bidding for Energy Group PLC.
Dallas-based Texas Utilities launched a $10.3 billion bid Monday for Energy Group, Britain's largest electric utility. The offer includes $7 billion in cash and the assumption of $3 billion of debt.
The bid challenges an offer that Pacificorp, a Portland, Ore., utility, has made for Energy Group. Pacificorp is financed through Goldman, Sachs & Co., its adviser.
Goldman, J.P. Morgan & Co., and Citibank said they would fully finance Pacificorp's $11.1 billion bid, which includes the assumption of $4.1 billion of Energy Group debt.
The broad involvement of both banks and investment banks for a loan of this scale underscores how evenly matched the two kinds of bank have become in the competition to do corporate lending.
"Nobody has a lock on any kind of financing anymore," said Steven Bavaria, a managing director at Standard & Poor's Corp. "But if you've got the M&A relationship and can show that you have full capability to syndicate loans, it certainly gives you that advantage."
Chase, Texas Utilities' traditional lender, has been named administration agent and co-arranger. Merrill and Lehman would co-arrange the facility, and each institution would underwrite an equal share.
About half the package would be financed in dollar-denominated debt; the other half, in sterling-denominated debt to be allocated to Energy Group for refinancing, according to market sources.
Nearly half the facility would consist of short-term, bridge-like facilities that would be repaid through issuance of other securities and through asset sales, sources said.
Lehman Brothers International and Merrill Lynch advised Texas Utilities on its bid. Lazard Brothers and Morgan Stanley & Co. are acting as advisers to Energy Group.
Under the Texas Utilities bid, it would sell its Peabody coal unit to Lehman Merchant Banking Partners II LP for $2.3 billion, plus the assumption of debt. The unit of Lehman Brothers said it would fund the acquisition of Peabody with 25% equity and the rest with debt from its parent.
Pacificorp initially agreed last June to acquire Energy Group for $5.8 billion. In December and January, Pacificorp raised $1.8 billion of cash from asset sales to apply to this transaction. It raised its bid to $10.7 billion Feb. 3.
A spokesman for Pacificorp said that its financing would initially be arranged in the bank market but that the utility intends to go to the bond market for some portion.
