Fox Paine Generates Investment in UAE –

Joining the ranks of buyout firms willing to take minority positions, Fox Paine & Co. last month invested $75 million to acquire a 44% stake in United American Energy Corp. (UAE), an electric power company.

In addition to Fox Paine, Duke Energy Power Services LLC, a unit of Duke Energy, raised its equity stake in UAE to 25% from 13% with a $25 million investment. Management retained a 20% stake in the company. The balance of the equity belongs to additional UAE employees and other individual investors.

As part of the deal, Fox Paine will take four of 10 UAE board seats. Management will retain four seats, while Duke will receive the remaining two.

UAE, based in Woodcliff Lake, N.J., buys technologically and financially distressed electric power plants, said Saul Fox, chief executive officer of Fox Paine. After the company makes an acquisition, its engineers overhaul the plant with fuels and technologies that conform to deregulated power markets.

The company, which was founded in 1980, has grown during a time of transition for the $200 billion power-generation industry.

“The part of the business that UAE has participated in historically is the unregulated side, where the industry as a whole is going,” Mr. Fox said. “Part of our interest is that these folks have been getting good returns in an unregulated environment.”

Concurrent with the investments, UAE spent $181 million to acquire two undisclosed electric power projects. With the new acquisitions, the company operates, or has interests in, 19 power-generating projects with a combined generating capacity of 730 megawatts.

“This is a complex business to analyze and run and is somewhat out of favor on Wall Street,” said UAE Vice President Donald Krom. “It’s never one quick and easy solution; hundreds of little things need to be incrementally improved.”

Mr. Fox said UAE will use the capital to reduce debt and enhance its borrowing capacity and is in the process of arranging debt financing.

The $500 million Fox Paine fund invests in energy, telecommunications and health-care industries. Since closing in April 1998, it has invested more than $200 million of its capital.