Toronto-based Universal Energy Group (UEG) has decided on a total package, acquiring troubled Commerce Energy Inc., the operating subsidiary of Commerce Energy Group (CEG), for approximately US$26 million, UEG said. The deal replaces a partial acquisition the companies had originally negotiated, and ends the uncertainty that had been swirling just days before (see Daily GPI, Dec. 11).

UEG, through its subsidiary Commerce Gas and Electric Corp. (CG&E), acquired more than 90,000 residential, commercial and industrial customers in the United States and also assumed certain letter of credit obligations related to the existing supply arrangements required to serve the Commerce customer base. Those obligations will unwind as current suppliers are replaced with UEG supply and credit arrangements, UEG said.

“This transaction positions the company for successful growth in key U.S. markets,” said UEG CEO Mark Silver. “Commerce’s platform puts us in almost every major deregulated market in the U.S. Leveraging our supply and credit arrangements will allow us to extract significant value from the more than US$25 million in annual operational margin generated from the Commerce customer base.”

Last week CEG said it had accepted a foreclosure by its secured lenders on all shares of Commerce after the lenders declared that CEG had defaulted on its debt. CEG said it “had a right not to consent to, and thereby delay,” the foreclosure, but “the company recognized that a delay would likely not prevent a foreclosure.” At the same time, the company declared a cash dividend of 84 cents/share and said it would continue to market gas and electricity in its current markets as a subsidiary of CG&E. “The company will commence proceedings to wind-up and dissolve as soon as practicable,” CEG said.

Commerce, which began its operations a decade ago in California’s fledgling retail electricity market as Commonwealth Energy, said last month it had agreed to sell most of its remaining customer base to UEG (see Daily GPI, Nov. 17). Under the proposed sales terms at that time, UEG was to have ended up owning two-thirnds of the Costa Mesa, CA-based natural gas and electricity service provider by providing US$16 million in cash and purchasing 49% of Commerce common stock.

That deal would have given UEG 60,000 of Commerce’s retail gas customers in Ohio and its electricity customers in Pennsylvania, New Jersey, Maryland and Michigan. Commerce Energy would have been left with residential customer operations restricted to California and Florida, along with a commercial/industrial group of customers in various states. That deal did not go through and UEG now is taking over all the Commerce assets.

Commerce previously reported that for the fiscal year, which ended Sept. 30, it had a net loss of $31.8 million, or minus $1.04/share, including $23 million of bad debt it had to write off, $20 million of which was in the Electric Reliability Council of Texas where it earlier sold its customer base to Ambit Energy LP. This compared to a profit in fiscal 2007 of $5.5 million, or 18 cents/share. The losses this most recent fiscal year came in the face of a 24% increase in Commerce’s overall revenues, which hit $459.8 million.

Even without the global credit and banking crisis, Commerce had been facing an uphill battle to turn around its fortunes, which a new senior management team, led by CEO Gregory Craig, has been attempting to do since February. The effort included asset sales and a substantial workforce reduction of about 80 jobs, or about 31%. More recently, CEG sold Houston-based energy consulting firm Skipping Stone, which it acquired four years ago, back to its founder.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.