The legal battle between former merger candidates NortheastUtilities and Consolidated Edison heated up a notch yesterday witha breach-of-contract lawsuit filed by NU against ConEd that seeksdamages of more than $1 billion, including the proposed premium inCon Edison’s $26.70/share purchase offer. NU’s share price hastumbled from the mid-$20 to a 52-week low last week of $18.21.

“Northeast Utilities filed this suit to recover the value of themerger for our company and shareholders, who have sufferedsubstantial damages as a result of Con Edison’s actions,” said NUChairman Michael G. Morris.

ConEd responded that lawsuit is “without merit,” adding that it”has at all times been and remains in compliance with the terms ofits merger agreement.”

The dispute has been going on publicly for two weeks. On March5, NU said that Con Edison had breached the merger agreementbecause it was unwilling to proceed on the previously agreed uponterms. ConEd sought to change the terms of the merger because ofcertain potential risks in the power supply obligations of NU’sunregulated subsidiary, Select Energy. ConEd filed suit last weekin the same federal court, the U.S. District Court for the SouthernDistrict of New York, against NU for allegedly failing to satisfyconditions of the merger agreement. ConEd also asked the court toabsolve it of any obligations it had to Northeast and asked thecourt to protect it from any damages sought by Northeast.

Commenting on a lawsuit filed by Con Edison, Morris said,”Northeast Utilities is and always has been in full compliance withthe terms of the merger agreement. Our company is considerably morevaluable today than at the time of the merger agreement, and ConEdison had no legal basis for refusing to complete the merger atthe agreed-upon terms.”

NU’s lawsuit seeks substantial monetary damages including, amongother things, the loss of the acquisition premium. The company’slawsuit also states that Northeast Utilities made enormousexpenditures of time, money and other resources in seekingregulatory approval of the merger and in preparing for theanticipated consolidation following the merger, and was required toforego business opportunities during the time that the operation ofits businesses was restricted by the provisions of the mergeragreement.

“Despite the restrictions we’ve operated under, the changes inour business over the past 16 months have been overwhelmingly forthe better, as demonstrated by recent multiple rounds of creditrating upgrades for Northeast Utilities and its operatingcompanies,” Morris said. “Northeast Utilities is well positioned tocreate new growth and build shareholder value in today’scompetitive energy markets.”

The merger would have created the nation’s largest electricitydistributor. NU operates New England’s largest energy deliverysystem, serving 1.77 million electric customers in Connecticut, NewHampshire and Massachusetts and 185,000 natural gas customers inConnecticut. Con Edison provides transmission and distributionservices to 3.3 million electric customers, 1.2 million gascustomers and 2,000 steam customers in New York.

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