ConEd, NU Merger Could Be in Jeopardy
The mega-utility merger of Consolidated Edison (ConEd) and
Northeast Utilities (NU) could be called off today. NU has told
ConEd to provide assurances by 5 p.m. Monday that it intends to go
through with the deal or else face legal action.
The only remaining regulatory hurdle for the $3.8 billion merger
(excluding $3.9 billion in NU debt) is a letter of approval from
the Securities and Exchange Commission (SEC), which is expected by
The two companies agreed on Friday to give ConEd more time to
think it over. The original deadline had been Friday morning. NU
said it expects to receive a definitive response whether ConEd
intends to comply with its contractual obligations to close the
merger at the price and terms agreed upon over 16 months ago. Both
companies also have agreed to not commence any litigation in
connection with this matter until after the Monday deadline.
NU said it would pursue "all available legal remedies to compel
Consolidated Edison to comply with its obligations or otherwise to
obtain the benefits of this transaction for Northeast Utilities'
"Northeast Utilities continues to believe that a merger with Con
Edison is in the best interests of our shareholders, employees,
customers and communities, and we are fully committed to closing
the merger," said NU CEO Michael G. Morris. "Despite several
requests over the past two weeks, Con Edison has failed to confirm
to us that it intends to meet its contractual obligations under the
merger agreement, and therefore we have no alternative but to
formally demand that Con Edison provide reasonable assurances, in
writing, that it will do so."
Con Edison said in a statement that it is "reviewing the
prospects for the merger in light of changes in Northeast
Utilities' businesses that have occurred since the merger agreement
and that impact their future prospects."
Officials at the New York utility would not explain what changes
they deemed threatening to the future performance of the merged
company. "That statement will have to stand on its own on this
one," said a spokesman.
There has been a resolution of electric restructuring issues in
Connecticut, New Hampshire, and Massachusetts, and NU is working
toward transforming itself into a pure transmission and
distribution provider without power generation assets.
"Northeast Utilities is a substantially more valuable company
today than when we entered into the merger agreement more than 16
months ago, so we are puzzled by Con Edison's apparent reluctance
to commit to this strategic combination and fulfill its contractual
obligations," Morris said.
He referred to a number of positive events that have occurred
since the merger was announced: NU's strong financial performance
in 2000; the execution of a purchase and sale agreement for the
Millstone nuclear power station that will bring to NU more than
$1.2 billion, or about $850 million more than previously
anticipated; the increasing likelihood that stranded costs will be
significantly reduced by the potential sale of NU's 40% interest in
the Seabrook nuclear plant; the successful integration of Yankee
Energy into Northeast Utilities; finalization of a settlement of
protracted industry restructuring issues in New Hampshire with
endorsement of an agreement by the state's legislators in May 2000,
utility regulators in September 2000 and the state supreme court in
January 2001; and multiple rounds of credit ratings upgrades for NU
and its operating companies, with NU unsecured debt now rated
investment grade for the first time in five years.
Under the terms of the merger agreement, ConEd agreed to acquire
all of the common stock of NU for $25/share in a combination of
cash and stock. However, the value of the amount of cash or stock
to be received by NU shareholders is subject to increase by an
amount of $0.0034 per share per day for each day that the
transaction did not close after Aug. 5, 2000. If the transaction
closed today, the total price would be $26.70 per share, which is a
33% premium compared to NU closing prices Tuesday of $20.03/share.
Wall Street observers believe ConEd may be trying to renegotiate
the transaction. NU shares lost $1 Wednesday, a 5% decline. ConEd
shares rose 2% to $36.72.
NU operates New England's largest energy delivery system, with
$5.9 billion in annual revenues and more than $10 billion in
assets. The company serves 1.77 million electric customers in
Connecticut, New Hampshire and Massachusetts and 185,000 gas
customers in Connecticut,
Con Edison provides transmission and distribution services to
3.3 million electric customers, 1.2 million gas customers and 2,000
steam customers in New York.