Florida Public Utilities Co. (FPU) has sent a letter to shareholders urging their approval of a proposed $595 million merger with Chesapeake Utilities Corp. and saying Energy Inc., an opponent of the merger, has “mischaracterize[d] important facts” of the deal.

The boards of both FPU and Chesapeake Utilities believe the merger “will provide significant strategic and financial benefits to shareholders, customers and employees,” including a premium of more than 15% based on FPU’s closing stock price the day before the merger was announced, according to the letter. FPU’s board unanimously recommended that shareholders approve the merger.

The deal was announced in April (see Daily GPI, April 21). After the close of the merger, FPU would be a wholly owned subsidiary of Chesapeake. The combined company would have approximately 117,000 natural gas customers, 31,000 electric customers and 48,000 propane customers in Delaware, Maryland and Florida. The deal cleared all state regulatory hurdles in July (see Daily GPI, July 22). The transaction is not subject to approval by the Federal Energy Regulatory Commission.

The merging process has not been a smooth one. In mid-June natural gas utility company Energy Inc. (formerly Energy West Inc.), a minority holder of the outstanding shares of FPU, took steps to put a wedge between the merging companies by demanding that FPU turn over a list of its shareholders (see Daily GPI, June 17). Claiming that it was “entitled to such a list,” Energy Inc. filed its request with the Securities and Exchange Commission (SEC), so it would be able to communicate with other FPU shareholders regarding the affairs of FPU.

Montana-based Energy Inc., which serves approximately 36,000 natural gas customers in Montana, Wyoming, Maine and North Carolina, reported that it owns 394,522 shares of common stock at $1.50/share in FPU. Under terms of the all-stock transaction, holders of FPU common stock would receive 0.405 shares of Chesapeake Utilities’ common stock in exchange for each outstanding FPU share. Based on the average of Chesapeake Utilities’ closing stock price on the 15 trading days prior to April 15, the transaction has an approximate value of $12.20/FPU share.

Responding to a recent announcement from Energy Inc. that it would seek proxies from FPU shareholders to vote against the merger, FPU said it had considered “other strategic initiatives, including other merger and acquisition opportunities,” but had concluded that increasing value to shareholders would best be achieved through the Chesapeake Utilities merger. The FPU board considered an unsolicited stock-for-stock acquisition proposal from Energy Inc. but decided that the proposal “did not provide the best available value for our shareholders, either immediately or in the long term,” FPU said.

“We believe that Energy Inc. is provoking a proxy fight now with the ultimate goal of gaining control over [FPU] without any value added for our shareholders,” FPU said.

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