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 mid-March.
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' shareholders."
"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.
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