The various mergers among six energy related firms in the next six months probably will result in the mergers of the respective pension plans as well.
The company mergers represent the first phase of an anticipated convergence between electric and gas utilities, according to industry analysts.
Two of the proposed mergers involve Texas-based electric utilities engaged in acquiring natural gas distribution companies. Texas Utilities Co., a Dallas electric utility, is acquiring ENSERCH Corp. for $550 million.
Houston Industries Inc., the ninth largest electric utility in the nation, has proposed purchasing NorAm Energy Corp., the third largest natural gas utility, for $3.8 billion.
Also, El Paso Energy Corp., a major natural gas wholesale distribution company, has agreed to acquire Tenneco Energy, the natural gas pipeline and energy division of Tenneco Inc., Greenwich, Conn., in a $4 billion deal expected to close by year end.
The TU/ENSERCH deal also is scheduled to close by December, while the Houston/NorAm deal is set to close before April.
In each case, pension plans and assets are expected to be folded into the acquiring business over a period of time.
According to TU officials, the approximately $270 million in pension assets of ENSERCH will be merged with TU's $1.1 billion plan after such issues as post-acquisition employment data, plan design issues and liabilities have been determined.
Officials at Houston Industries said NorAm's $405 million pension plan would be operated as a separate plan from Houston Industries' $515 million plan for a year after the deal closes. A Houston Industries spokesman said the company will use that time to determine the appropriate plan design and asset management structure for the plans when or if they are merged.
NorAm and Houston Industries have two equity managers in common - Fayez Sarofim & Co. and Dietche & Field Advisers. Neither firm would comment on the matter.
A spokeswoman for El Paso Energy said the Tenneco Energy plan could be merged eventually, or "we may start new plans for the entire employee population of El Paso Energy."
Because El Paso is only acquiring the energy division of Tenneco, with 3,500 employees, only about $775 million, or 25%, of Tenneco's approximately $3.1 billion pension assets are likely to be transferred.
One unique aspect of the El Paso/Tenneco deal is that it calls for El Paso to assume approximately $450 million in retiree medical liabilities from Tenneco. That amount would represent the biggest portion of Tenneco's accumulated retiree medical liability, which totaled about $512 million according to the company's 1995 annual report to shareholders.
The El Paso spokeswoman said the liability would be amortized over a 20- to 30-year period.
On the surface, the assumption of the liability seems to resemble Boeing Co.'s recent announcement that it would assume about $100 million of pension liabilities as part of its acquisition of Rockwell International Corp.'s aerospace and defense business (Pensions & Investments, Aug. 19).
But Boeing plans to use a portion of its pension surplus to offset the assumed pension liability from Rockwell. El Paso has no surplus assets.
John E. Thompson Jr., manager of trust investments at TU, said the ENSERCH plan probably will be an "easy fit" into the TU plan eventually.
As the merger nears completion, officials will decide on any early retirement incentives or other changes in plan design. "We are in the early stages now of looking at how to merge the two plans," Mr. Thompson said. Once TU determines the liability structure of the new employee base, "there is probably no reason not to merge the plan assets."
He said transition teams from both companies already started work on "deciding what the new company will look like."
Sometime in early 1997, he said, TU will examine the asset allocation of the new plan to "see if we want to go with our current asset allocation structure and how the ENSERCH assets fit in with that. We will look at their manager lineup at that time. Right now there is some duplication and overlap in investment styles in certain areas, but we will want to see how their assets relate to the overall asset mix before we decide to let anyone go," Mr. Thompson said. "Because of the overlap there may be a reduction in the number of managers at some point."
Mr. Thompson said he does not expect to add staff, nor does he expect any pension staff layoffs because the ENSERCH plan is overseen by the human resources department at ENSERCH.
Whether the round of mergers and acquisitions in the energy industry results in the merging of pension plans immediately, industry analysts say cost efficiencies ultimately will result in plan consolidation.
Barry Abramson, utility analyst at Prudential Securities Inc., New York, said the similarities of the merging companies coupled with "economies of scale will eventually result in merging the plans."
Mr. Abramson said he expects the round of electric utility acquisitions of natural gas distribution networks to accelerate as both industries are deregulated.
He said there are several reasons electric utilities are interested in acquiring natural gas distribution networks in their existing service territories, one of which is to keep other utilities from buying them first.
