Rumor is more than a few deeply loyal folks at TECO Energy gathered for a moment of silence after the sale of one of the Tampa power company's crown jewels: a Florida power plant.
But sell is exactly what cash-strapped and debt-bloated TECO did this week. TECO unloaded its 370-megawatt Hardee Power Station in Hardee County for $115-million plus the assumption of about $103-million of long-term debt.
The buyers? A couple of savvy bargain hunters named Mike Polsky and Bruce Rauner from the Chicago area.
They are part of an expanding breed of investors targeting the bounty of cheap-and-getting-cheaper assets for sale in the overbuilt, post-Enron power industry. Opportunists? Yes. Bottom feeders? That's another way to put it.
But Polsky and Rauner are in good company. Billionaires Warren Buffett and Carl Icahn also smell blood and are on the hunt for power properties at near-liquidation prices.
In TECO's case, the parent company of Tampa Electric had little choice but to sell its Hardee Power Station. TECO's unregulated subsidiary, TECO Power Services, owned the Hardee plant as well as a bunch of mostly unused power plants out West - distant plants TECO surely would have preferred to sell. But nobody wants them right now because they lack customers. In contrast, TECO's Hardee plant is valuable because it has contracts stretching another decade to sell electricity to TECO's own Tampa Electric and to the Seminole Electric Cooperative.
Which is why Polsky and Rauner pounced. Polsky heads a power plant development business called Invenergy LLC. Rauner runs a private-equity investment firm known as GTCR Golder Rauner LLC.
Polsky immigrated from Ukraine in the mid 1970s at age 26 and was soon in the thick of the power plant business. He co-founded an Illinois-based power plant developer called Indeck Energy Services and later started a similar business called Polsky Energy Group. Renamed SkyGen, the company was sold by Polsky in 2000 to giant Calpine Corp. for $650-million. Now he's back in the game with Invenergy.
Polsky obviously knows a deal when he sees one. Last fall, his $7-million gift to the University of Chicago Graduate School of Business (where he received an MBA in 1987) led to the creation of the business school's Michael P. Polsky Center for Entrepreneurship.
Rauner, the less visible investor in TECO's power plant, is a money guy. Besides, he's busy with other deals. Earlier this summer, his private equity firm agreed to buy the American Stock Exchange for $110-million.
Talk about a small world. In 1999, Polsky's SkyGen partnered with Carolina Power & Light. They planned to build gas-fueled power plants across the Southeast and in Florida. One plant was developed in South Carolina before SkyGen was sold. At about the same time, Carolina Power & Light decided to acquire St. Petersburg's Florida Progress Corp.
The resulting company is now known as Progress Energy, TECO's larger neighbor and, in the wholesale electric market, a major rival in the Sunshine State.
Elsewhere, Buffett is increasing his investments in the power business through his Berkshire Hathaway company and its stake in MidAmerican Energy Holdings. MidAmerican last year bought natural gas pipelines from Dynegy Corp. and Williams Cos.
Other deep-pocket players reported to be sniffing around for cheap buys include David Bonderman's Texas Pacific Group, the Blackstone Group, Boston's Thomas H. Lee Partners, Chicago's Madison Dearborn Partners, Apollo Advisors LP and Kohlberg Kravis Roberts & Co.
The most intriguing and newest arrival to the power industry is the infamous corporate raider of the 1980s, New York's Icahn. When Icahn took over troubled Trans World Airlines in the mid 1980s, the baggage handlers appreciatively dubbed him "Uncle Carl." Later, they used the nickname to scorn the boss they accused of walking away with vast profits before relinquishing control of TWA in 1993.
In 2000, he forced RJR Nabisco Holdings to split its food and tobacco units after four years of trying. He has considered a run at bankrupt telecom player Global Crossing. And earlier this year, Icahn's eye focused on a troubled Tampa company, clothing maker Tropical Sportswear. He has since quietly bought up at least 8.34 percent of the company's shares.
To pursue cheap buys in the power industry, Icahn teamed up this summer with Panda Energy International of Dallas in a joint venture called Panda Acquisitions Group. It is targeting several billion dollars worth of assets, especially natural gas-fired power plants in the 500-megawatt range.
The venture is Icahn's first move into the electric power sector. But Panda is a familiar name in Florida power circles. Panda Energy tried unsuccessfully on its own to build power plants in Florida in the 1990s. In 2000, TECO Power Services said it would invest hundreds of millions with Panda to build power plants in Texas, Arkansas and Arizona and sell electricity in what was assumed to be increasingly deregulated markets.
"We're trying to be early entrants in markets that are just opening up," TECO CEO Bob Fagan said in late 2000, adding that he saw no slowdown in projected power needs over the next five years.
Ouch. His forecast rang true for more like five minutes. That miscue is one big reason TECO is selling Hardee Power Station today. TECO severed its messy Panda partnership earlier this year.
It all reminds me of the 1980s, when so many banks collapsed that the joke was: Buy a toaster, get a free bank.
Hopefully, things won't get that ugly in the power world.
