The mega-utility merger of Consolidated Edison (ConEd) andNortheast Utilities (NU) could be called off today. NU has toldConEd to provide assurances by 5 p.m. Monday that it intends to gothrough 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 fromthe Securities and Exchange Commission (SEC), which is expected bymid-March.

The two companies agreed on Friday to give ConEd more time tothink it over. The original deadline had been Friday morning. NUsaid it expects to receive a definitive response whether ConEdintends to comply with its contractual obligations to close themerger at the price and terms agreed upon over 16 months ago. Bothcompanies also have agreed to not commence any litigation inconnection with this matter until after the Monday deadline.

NU said it would pursue “all available legal remedies to compelConsolidated Edison to comply with its obligations or otherwise toobtain the benefits of this transaction for Northeast Utilities’shareholders.”

“Northeast Utilities continues to believe that a merger with ConEdison is in the best interests of our shareholders, employees,customers and communities, and we are fully committed to closingthe merger,” said NU CEO Michael G. Morris. “Despite severalrequests over the past two weeks, Con Edison has failed to confirmto us that it intends to meet its contractual obligations under themerger agreement, and therefore we have no alternative but toformally demand that Con Edison provide reasonable assurances, inwriting, that it will do so.”

Con Edison said in a statement that it is “reviewing theprospects for the merger in light of changes in NortheastUtilities’ businesses that have occurred since the merger agreementand that impact their future prospects.”

Officials at the New York utility would not explain what changesthey deemed threatening to the future performance of the mergedcompany. “That statement will have to stand on its own on thisone,” said a spokesman.

There has been a resolution of electric restructuring issues inConnecticut, New Hampshire, and Massachusetts, and NU is workingtoward transforming itself into a pure transmission anddistribution provider without power generation assets.

“Northeast Utilities is a substantially more valuable companytoday than when we entered into the merger agreement more than 16months ago, so we are puzzled by Con Edison’s apparent reluctanceto commit to this strategic combination and fulfill its contractualobligations,” Morris said.

He referred to a number of positive events that have occurredsince the merger was announced: NU’s strong financial performancein 2000; the execution of a purchase and sale agreement for theMillstone nuclear power station that will bring to NU more than$1.2 billion, or about $850 million more than previouslyanticipated; the increasing likelihood that stranded costs will besignificantly reduced by the potential sale of NU’s 40% interest inthe Seabrook nuclear plant; the successful integration of YankeeEnergy into Northeast Utilities; finalization of a settlement ofprotracted industry restructuring issues in New Hampshire withendorsement of an agreement by the state’s legislators in May 2000,utility regulators in September 2000 and the state supreme court inJanuary 2001; and multiple rounds of credit ratings upgrades for NUand its operating companies, with NU unsecured debt now ratedinvestment grade for the first time in five years.

Under the terms of the merger agreement, ConEd agreed to acquireall of the common stock of NU for $25/share in a combination ofcash and stock. However, the value of the amount of cash or stockto be received by NU shareholders is subject to increase by anamount of $0.0034 per share per day for each day that thetransaction did not close after Aug. 5, 2000. If the transactionclosed today, the total price would be $26.70 per share, which is a33% premium compared to NU closing prices Tuesday of $20.03/share.Wall Street observers believe ConEd may be trying to renegotiatethe transaction. NU shares lost $1 Wednesday, a 5% decline. ConEdshares 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 inassets. The company serves 1.77 million electric customers inConnecticut, New Hampshire and Massachusetts and 185,000 gascustomers in Connecticut,

Con Edison provides transmission and distribution services to3.3 million electric customers, 1.2 million gas customers and 2,000steam customers in New York.

Rocco Canonica

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