USEC sale to be share offering

30 July 1998

Unable to get a fair market price for the government-owned US Enrichment Corp, the Clinton administration had decided instead to offer shares in the company to the public.

The company made the decision on 29 June to proceed with an initial public stock offering, perhaps as soon as late September or early October.

USEC said it had failed to receive acceptable bids from either of the two groups it had been negotiating with. One group consisted of Lockheed Martin, the aerospace manufacturer, BWX (formerly Babcock & Wilcox), and the Carlyle Group investment firm. The second group consisted of General Atomics of San Diego and Texas Pacific Group.

Some industry analysts said the US Treasury’s asking price was too high for a number of reasons:

• USEC’s share of the global market is continuing to decline.

• USEC currently uses ageing gaseous diffusion plants (GDPs).

• USEC is committed to buying high-enriched uranium from Russia at above-market prices.

• USEC’s hopes for regaining market share in the future rest on the atomic vapour laser isotope separation (AVLIS) process – which is unproven and or could be superseded by new technologies such as a South African enrichment process.

But others have taken a more positive view noting that USEC plans to pay investors an unusually attractive annual cash dividend. They also note that Lockheed Martin was willing to pay more than what the Treasury will get from a stock offering, and that USEC leases, rather than owns, its enrichment plants, which means the federal government would retain responsibility for environmental cleanup. Some reports say a buyout deal foundered not over price, but because the aerospace company wanted to cut 1700 jobs, something politically unacceptable.

USEC hopes to raise as much as $1.65 billion through the IPO, which will be handled by Stanley Dean Witter and Merrill Lynch. The US Treasury hopes the underwriters can sell 100 million shares at $13.50 to $16.50 a share. USEC could also borrow another $550 million, which would be repaid to the Treasury. Theoretically, the Treasury Department could cancel the sale if shares do not bring the minimum price of $13.50, but that could pose a difficult problem if it elicited lawsuits from rejected bidders.



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