Pacific Enterprises sets $195 million stock offering.

Stock price gains as firm trims back to natural gas core

A leaner Pacific Enterprises, the parent company of Los Angeles-based Southern California Gas Co., plans to sell an estimated $195 million stock offering and resume paying dividends to its shareholders.

Pacific Enterprises has nearly completed a plan to divest of non-utility-related business, in an attempt to recover from fiscal troubles which developed several years ago when it diversified into retail and other areas, neglecting its core utility business.

"Once we told people we were a diversified utility holding company," said Pacific Enterprises Chief Executive Willis B. Wood Jr. "Now, we're a utility holding company period."

In 1992, the company sold its retailing operations, including Los Angeles-based Thrifty Corp., and sold its domestic oil and gas operations in early 1993. Now, Wood said, the company is through with the problem areas and focused on its crown jewel -- Southern California Gas Co., the nation's largest natural gas distribution facility serving 4.7 million customers and 535 cities and communities.

"Pacific Enterprises has gotten rid of the garbage and they're back to being a natural gas company," said Richard Lazarchic, recent manager of a $600 million utilities income fund for IDS Securities, a subsidiary of American Express. Lazarchic said IDS holds a significant position in Pacific Enterprises' stock.

"Wall Street has been turned off to Pacific Enterprises for so long. The stock is worth more than it is selling at and one day Wall Street will recognize that," he said.

Pacific Enterprises' stock dropped from $52 per share in 1990 to lows of around $17.50 per share in 1992. Its stock has since rebounded and closed at $23.25 per share last Monday.

The company's fiscal woes forced it to slash its annual dividend in 1990 from $3.48 per share to $1.76 in 1991. Then, during the second quarter of 1992, Pacific Enterprises suspended all dividend payments.

"It was one of the toughest decisions we've ever made," said Woods. "But it was imperative to save the company and protect the utility."

After the stock offering, company officials say, Pacific Enterprises will resume annual dividend payments of $1.20 per share.

The company filed April 20 with the Securities and Exchange Commission to sell an estimated 7,000 shares, expected to be priced at $24.32 per share, according to the prospectus. The offering could be sold by mid-year and proceeds will be used to partially repay and retire high interest bank debt.

Lazarchic said he could not predict how the market will accept Pacific Enterprises' proposed stock offering.

"I think it depends on the story they have to tell. It's good they've been taking this time to get their act together," he said.

After adjusting numbers for its discontinued operations, the company reported net income of $194 million in fiscal 1992 as compared to $212 million in 1991. Operating revenues were reported at $2.8 billion for 1992 and $2.9 billion for 1991.

At least one analyst said he may change his tune about Pacific Enterprises.

Gary Hovis, an analyst with Argus Research, said while he has had a hold on the stock for the last 15 months, he plans to "raise my recommendation to a buy some time before fall unless a glitch pops up," he said.

Los Angeles-based brokerage firm Crowell, Weedon & Co. is recommending Pacific Enterprises' stock, noting that problems of the past few years have not affected the core utility's operating or fiscal strength.

"We believe that remaining issues of non-utility debt repayment and financing, corporate level work force reduction ... have been addressed," wrote Crowell analyst Doug Christopher.

The underwriting is being offered through Lehman Brothers, Merrill Lynch & Co. and Dean Witter, Reynolds Inc.