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
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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