Delays Prompt DTE, MCN to Revise Merger
DTE Energy knocked off more than $400 million from the cost of acquiring MCN Energy Group last week, according to a revised merger agreement approved by the boards of both companies.
The companies said the long delay in the regulatory approval process and the likelihood the deal could remain uncompleted through the April 15 deadline were the major factors in their decision to revise the terms of the transaction. They also noted they did not anticipate the unprecedented increases in gas prices since the deal was announced in October 1999 or the Federal Trade Commission requiring MCN's sale of a portion of its pipeline capacity.
Under the revised terms, DTE will acquire the outstanding shares of MCN for $24/share, or 0.715 shares of DTE stock, instead of $28.50, or 0.775 shares of DTE. The value of the revised transaction was about $2.2 billion last week. Including the assumption of debt, the value is $4.27 billion. The revision also postpones the possibility of either company opting out of the transaction to the end of the year.
"Circumstances beyond the control of the management of either company, notably the regulatory approval process, had brought into question the probability of closing the transaction by the April 15 opt out date," said DTE Chairman Anthony F. Earley Jr. "While the process has taken longer than anticipated, we can now, with virtual certainty, look forward to completing the merger and working together as one management team."
MCN CEO Alfred R. Glancy III said the MCN board and management decided that the uncertainty of closing by April 15 could result in a "significant reduction of shareholder value, well below the level represented by this renegotiated price. We determined that the very high degree of certainty of consummation represented by the amended agreement warranted accepting the revised price. We believe this was the most prudent course of action under the circumstances."
MCN's board also received a fairness opinion from its financial advisor, Merrill Lynch, Pierce, Fenner & Smith Inc. DTE Energy received a fairness opinion from UBS Warburg.
The companies originally filed for FTC and Securities and Exchange Commission approvals in November 1999, and have since sought to resolve anti-trust concerns. A special agreement approved by the Michigan Public Service Commission on Feb. 14 is expected to resolve all material anti-trust concerns and pave the way for final FTC approval within the next couple of weeks, the companies said. Revised proxy materials will be filed with the SEC shortly. A revised Public Utility Holding Company Act application will be filed with the SEC. The companies estimate that all needed approvals can be obtained and the merger can be closed within four to five months.
DTE's principal operating subsidiary is Detroit Edison, an electric utility serving 2.1 million customers in Southeastern Michigan. MCN primarily is involved in gas production, gathering, processing, transmission, storage, distribution and marketing in the Midwest and Northeast corridor. Its largest subsidiary is Michigan Consolidated Gas Company, a gas utility serving 1.2 million customers in Michigan.
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