In a stunning defeat, the Montana Public Service Commission (PSC) unanimously rejected an Australian company's $2.2 billion bid to buy NorthWestern Energy. The PSC said the purchase would put Montana consumers at risk for higher rates and poor service.
In a 5-0 vote, commissioners Tuesday declined to approve Babcock & Brown Infrastructure (BBI) as the new owner of South Dakota-based NorthWestern, which serves 640,000 natural gas and electric customers in Montana, South Dakota and Nebraska. The PSC directed staff to begin drafting a final order rejecting the proposed merger.
The Montana PSC was the last remaining regulatory hurdle for the merger.
"It offers no tangible benefits to the ratepayers, but puts them under much more risk," said Commissioner Bob Raney. The offer "was mostly what BBI could do, rather than what it would do."
In April 2006, NorthWestern and BBI announced a definitive agreement under which BBI would acquire NorthWestern in an all-cash transaction at $37/share (see Daily GPI, April 26, 2006). The transaction followed NorthWestern's emergence from bankruptcy and a decision in November 2005 to seek strategic alternatives for the company.
The agreement required shareholder and regulatory approval at both the federal and state level. The Federal Energy Regulatory Commission (FERC) approved the sale last October (see Power Market Today, Oct. 20, 2006), and the purchase also had been given a thumb's up other state regulatory officials. FERC noted in its approval that the merger was consistent with the public interest because it would not have an adverse effect on competition, rates or regulation, and it would not result in cross-subsidization of a nonutility associate company.
However, the transaction was controversial from the start in Montana. State regulators and lawmakers expressed concern about a foreign entity taking over the U.S. utility because they said NorthWestern would lack control over its operations. A lengthy investigation followed, and in the end the Montana commissioners said they were not persuaded that the deal would benefit ratepayers.
"We are obviously disappointed by this development," said NorthWestern CEO Mike Hanson. "However, we will wait until the written order is issued before deciding on our next steps. We remain committed to this transaction and to working through the process."
BBI said in a statement it was surprised by the PSC decision because the company made a "strong case" that it would provide long-term stability to consumers.
Last year, FPL Group and Constellation Energy called off their $31 billion merger after facing a protracted battle with Maryland legislators and regulators over the transaction (see Daily GPI, Oct. 26, 2006). A month before, Public Service Enterprise Group and Exelon Corp. terminated their merger agreement for similar reasons (see Daily GPI, Sept. 15, 2006).
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