NorthWestern Corp. announced Thursday plans to sell its Expanets unit to Avaya Inc.

NorthWestern Corp. announced Thursday plans to sell its Expanets unit to Avaya Inc. as the debt-ridden company began shedding some unprofitable, non-utility affiliates in an effort to reorganize its finances under Chapter 11 bankruptcy.

By CHARLES S. JOHNSON – IR State Bureau

Avaya, based in Basking Ridge, N.J., will buy most of the assets of Expanets, NorthWestern’s telecommunications business, for $152 million in cash, minus unspecified capital adjustments and other liabilities. Officials weren’t sure Thursday how much these would be. The deal is expected to close in 30 days after regulatory approval.

NorthWestern, based in Sioux Falls, S.D., paid $230 million to buy Expanets three years ago. Figures were not available on the total amount NorthWestern had invested in Expanets. Saddled with $2.2 billion in debt, NorthWestern has been trying to sell the affiliate since earlier this year in an effort to turn around its shaky finances.

NorthWestern Corp. is the parent company of NorthWestern Energy, the Butte-based affiliate that provides electricity and natural gas to more than 300,000 Montanans. NorthWestern Corp. bought Montana Power Co.’s remaining utility business last year.

‘‘We are pleased to be moving forward with the divestiture of our non-utility businesses and believe that Avaya’s commitment to the Expanets business and its customers will ensure a smooth transition,” NorthWestern’s president and chief executive officer, Gary Drook, said. ‘‘We remain committed to our efforts to emerge from our restructuring as a financially stable, focused energy company.”

PSC Chairman Bob Rowe, D-Missoula, said the commission told NorthWestern, as part of a financing order in January, to get rid of its non-utility affiliates and to refocus on its utility operation.

‘‘This is an important step in the right direction,” Rowe said. ‘‘The price appears to be certainly in line with what was expected. My recollection is there is probably $400 million sunk (by NorthWestern) into it (Expanents), so they’re taking a loss essentially of $250 million.

‘‘That’s troubling, but the key thing and the positive thing is they have managed to get out from under another affiliate and they are moving in the direction that the commission has instructed over the last 10 months.”

Commissioner Tom Schneider, D-Helena, said, ‘‘It allows them to dump one of the losers in their non-utility operation and recover a portion of their costs. We need to make sure that those proceeds are targeted to the bankruptcy estate to help consumers in Montana.”

The sale of Expanets through an auction yielded a higher price than NorthWestern would have reaped under an earlier proposal. NorthWestern announced Sept. 15 it would sell Expanents for $107.6 million, minus debt and capitalized leases, to Cerberus Capital Management and TenX Capital Management.

The winning bid of $152 million was $44.4 million or 41 percent higher at the end of the auction Wednesday in New York City. Expanets approved Avaya’s final bid, with NorthWestern, as the controlling shareholder, concurring.

James Bellessa, vice president for research at D.A. Davidson & Co. in Great Falls, called this approach ‘‘the stalking horse bid methodology” and said it worked out for NorthWestern.

Those bidding early submit ‘‘a reasonable but a low-ball bid,” agreeing to buy it on certain terms but recognize that the company will be put up for bid, he said. Those businesses who submit the stalking horse bids also have an opportunity ‘‘to up their ante” if they wish and have longer to examine the company’s books, Bellessa said.

‘‘So they set a floor for which the company will be bid,” Bellessa said. ‘‘If no one bids higher, they take over. If they lose out, there’s normally a payment to them. They might have gotten a couple of million bucks.”

Bellessa estimated NorthWestern will wind up with $50 million to $75 million in cash from the sale after the working capital adjustments and other liabilities are paid off from the $152 million.

‘‘That goes to help bulk up their assets so they can get through the winter, have cash to operate, work through their bankruptcy and pay off their creditors,” Bellessa said.

Robert Mead, head of the New York office of Gavin Anderson & Co., a public relations firm representing NorthWestern, said stalking horse bids ‘‘are quite common in Chapter 11 reorganizations.

‘‘We’re very pleased with the results of the auction and the purchase price,” Mead said. ‘‘It will improve our cash position.”

Mead said NorthWestern is moving forward with plans to sell two other affiliates, Blue Dot, its heating, ventilation and air conditioning business, and Montana First Megawatts, its mothballed, half-completed gas-fired power plant being built near Great Falls.

http://helenair.com/articles/2003/10/31/montana_top/a01103103_03.txt