SCEcorp Fight for SDG&E; Hits 11th-Hour Snag : Board of Smaller Utility Seeks Additional Week to Review New, Higher Offer
SCEcorp, corporate parent of Southern California Edison, came close Wednesday to succeeding in its hard-fought campaign to merge with San Diego Gas & Electric, but negotiations stalled at the 11th hour as SDG&E;’s board demanded additional time to review SCE’s latest offer.
“We were very close to a deal,” SCE Chairman Howard Allen said in an interview. “I really don’t know what prompted their request for an additional week.” SDG&E;’s unexpected request followed “10 days of extensive negotiations,” Allen said.
On Wednesday, SCE boosted the value of its stock swap merger to $2.4 billion from the $2.16 billion that it originally proposed last summer. The company agreed to keep its latest offer open for one week “because we want (SDG&E;) to have the time that’s necessary to make an informed, prudent judgment,” Allen said.
If completed, the merger would create the nation’s largest investor-owned electric utility, with 4.8 million customers. The deal would extend Edison’s territory from its current base of 3.8 million customers in the Los Angeles area to San Diego and southern Orange counties, one of the nation’s fastest-growing markets for electricity.
Lengthy Meeting
SDG&E; has been struggling in court and in regulatory proceedings to remain independent since SCE made its surprise merger bid in July.
The San Diego-based utility rejected SCE’s twice-sweetened offer Sept. 1, saying it would instead complete a previously announced merger with Tucson Electric Power. But SDG&E; dropped the proposed Tucson Electric merger in early November, blaming anticipated strong opposition from SCE during regulatory proceedings in California, Arizona and Washington.
SDG&E;’s directors reviewed SCE’s latest offer during a lengthy Wednesday morning board meeting, but “there is no assurance that an agreement will be reached or that any transaction will take place,” according to SDG&E; spokesman Maurice Luque.
Rumors about a possible merger agreement began to circulate early Wednesday after SCE and SDG&E; asked the New York Stock Exchange to suspend trading of their stock pending a “material announcement.” Neither company’s stock traded Wednesday.
One prominent San Diego executive said SDG&E;’s board had been expected to approve SCE’s newest offer during Wednesday’s meeting. However, “something unwound and the deal just fell apart,” the executive said.
“It was my understanding that (SDG&E; and SCE board members) went into this with only a few i’s to dot and some t’s to cross,” said Steve McNamara, a Los Angeles-based analyst with Bateman Eichler, Hill Richards Inc. “I’m very puzzled why it took all day for San Diego to ask for another week.”
Utility industry analysts on Wednesday described SCE’s latest offer as very attractive for SDG&E; shareholders.
Stock Swap Ratio Raised
“The last offer (at $2.2 billion) was a good deal for SDG&E; shareholders and this one is even better,” McNamara said. “It really doesn’t sound like they’d need a week to study it.”
“This has got to be one of the best deals possible for SDG&E; shareholders,” said Edward J. Tirello Jr., a New York-based analyst with Shearson Lehman Hutton. “I could only guess that SDG&E;’s board needs some more time to pull one or two (uncertain) members on board.”
SCE “went as far as we thought was prudent” to bolster the value for SDG&E; shareholders, Allen said. Wednesday’s offer increased the stock swap ratio by which SCE wants to acquire SDG&E; to 1.3 shares of Edison for each share of SDG&E.; The ratio previously was 1.225 shares of SCE common for each share of SDG&E.; The original bid was 1.15 shares.
SCE’s new offer also addressed growing fears in San Diego that SDG&E;’s strong charitable and civic presence would disappear if the local utility were merged into Rosemead-based Edison. Allen said the proposed agreement would require SCE to increase SDG&E;’s current level of financial support for charitable, cultural, educational and business civic activities in San Diego.
Civic leaders in San Diego have been rallying behind the local utility during SCE’s often-bitter bid for SDG&E.; “We’ve lived in the shadow of Los Angeles and San Francisco for too long, and (if the deal occurs) we won’t even have our own utility,” said Chamber of Commerce Chairman William Nelson. “There are psychological effects involved that are not soothing to think about.”
Repeats Earlier Pledge
State officials promised Wednesday that any merger involving a California-based utility would be subject to intense scrutiny during a review by the state Public Utilities Commission that could last for a year or longer.
“If the agreement happens, it will have to be approved by this body,” PUC member G. Mitchell Wilk said Wednesday. “We have SCE’s application and we’re already committed to a full, open and deliberative process.”
State Sen. Herschel Rosenthal (D-Los Angeles) on Wednesday called for state Atty. Gen. John Van De Kamp to conduct “an immediate antitrust investigation into the merger” if it occurs.
Legislation to be introduced by Rosenthal next month would require that the PUC disapprove mergers that do not significantly improve electric rates paid by consumers, Rosenthal said. Rosenthal also hopes to force utilities to prove that mergers are “fair and reasonable to all affected public utility employees and the local communities.”
Allen repeated his earlier pledge to reduce residential electric rates in San Diego by 10% six months after the proposed deal is completed.
Allen also said SCE intends to keep SDG&E;’s natural gas distribution business. “It’s smaller than the electric side but it’s a good business and it is our intention to operate it indefinitely,” he said.
LARGEST PUBLICLY OWNED ELECTRIC UTILITIES
Rank Company Customers 1 Pacific Gas & Electric 3,951,461 2 Southern California Edison 3,717,236 3 Commonwealth Edison (Chicago) 3,096,995 4 Florida Power & Light 2,906,815 5 Consolidated Edison of New York 2,873,012 6 TU Electric (Texas) 2,094,804 7 Detroit Edison 1,856,963 8 Public Service Electric & Gas 1,809,543 (Newark, N.J.) 9 Virginia Electric Power 1,648,696 10 Duke Power (Charlotte, N.C.) 1,520,683 11 Georgia Power 1,486,895 12 Niagara Mohawk Power 1,446,975 13 Consumers Power (Jackson, Mich.) 1,410,311 14 Philadelphia Electric 1,386,497 15 Houston Lighting & Power 1,306,322 16 Pennsylvania Power & Light 1,097,464 17 Alabama Power 1,090,219 18 Northern States Power (Minnesota) 1,068,074 19 Florida Power 1,056,903 20 Union Electric (St. Louis) 1,052,751 21 Connecticut Power 1,024,540 22 San Diego Gas & Electric 990,378 23 Long Island Lighting 972,675 24 Baltimore Gas & Electric 968,468 25 Public Service of Colorado 921,552
Source: Edison Electric Institute. Based on Dec. 31, 1987, figures.
