Edison’s Shaky Status Underscored by Offer

A longshot proposal by a small Long Beach street-lighting company to acquire Edison International has focused new attention on the fate of its insolvent Southern California Edison utility.

Edison executives have warned that the utility, crushed by some $3.5 billion in debt from losses on power purchases during the last year, could be forced to file for bankruptcy protection unless lawmakers pass a rescue plan now stalled in the state Legislature.

The surprise bid from City Light & Power Inc., however, points to another possibility: the acquisition of all of Edison International or its utility subsidiary by another entity.

Rosemead-based Edison quickly rejected the proposal, which City Light & Power disclosed Friday.

“It’s fair to say that the idea apparently floated by a company called City Light & Power is without any merit,” said James Scilacci, SCE’s chief financial officer. “And, in any event, our company is not for sale.”

Wall Street gave the City Light proposal little credence. Edison shares rose only 2 cents in a broadly higher market to close at $14.20 on the New York Stock Exchange.

Rumors about a possible purchase of Edison have been floating among senior government officials in Sacramento for several days, coming against a backdrop of dwindling support for a legislative solution to the utility’s problems.

Several sources confirmed that Gov. Gray Davis and legislative leaders had been briefed on the City Light proposal but expressed varying degrees of skepticism about its prospects, whether the would-be buyers have financing and whether a takeover could surmount legal hurdles. Any proposed acquisition or merger would have to receive the blessing of the California Public Utilities Commission as providing economic benefit to ratepayers.

Davis has been lobbying the state Assembly to pass a bill that would allow Edison to float bonds to pay off part of the utility arm’s outstanding debt. But lawmakers of both parties say that as of week’s end, the governor had made little headway. Assembly members have little enthusiasm for a bill that consumer advocates have labeled a bailout.

Faced with the possibility that no bill will pass, officials have been discussing possible alternatives.

Some lawmakers argue that U.S. Bankruptcy Court is a better arena than the Legislature in which to work out Edison’s problems. Others say the main intent of the Assembly bill--allowing Edison to use electricity rate collections to guarantee bonds to retire most of the utility’s debt--could be accomplished by the PUC without legislative action.

At the same time, industry and Wall Street sources say, several energy companies--including Duke Energy Corp., Dynegy Inc., Orion Power Holdings Inc. and El Paso Corp.--have considered an Edison deal. Some have even contacted the company, attracted by a depressed share price that has shaved $4.1 billion from Edison’s stock market value since September.

But prospective suitors may be loath to jump into the “power quagmire” in California until they can get a better read on what the rules of the game, and the associated risks, will be in the future, said analyst Daniel Scotto of BNP Paribas in New York.

Chriss Street, chairman of Street Asset Management, a Newport Beach money manager that represents some Edison bondholders, said he believes several investment groups are eyeing Edison International with the intent to create national electrical transmission and distribution companies.

Street said many Edison investors are expecting to see some broad change or restructuring in the company that would prove profitable for those who have bought its shares since they bottomed out this winter in the throes of the state’s energy crisis.

The major holders of Edison stock are no longer “widows and orphans looking for dividends,” Street said. Such conservative investors have given way to arbitrage specialists and investors who favor distressed companies--savvy groups that will extract top value for Edison in any deal, Street said.

“The real restructuring and negotiations over Edison will begin after the Legislature acts,” said Street, who believes that a rescue plan will be debated “until the last minute” but ultimately win legislative approval.

A suitor would need what analyst Scotto calls “pedigree” money and high-powered investment banks with thorough financing and the clout to persuade stockholders to cough up their shares.

Edison International in 1996 adopted a “shareholder rights” agreement to make a hostile takeover more difficult. The company’s anti-takeover measure is typical of many so-called poison pills.

Shareholders were given rights to a new class of preferred stock that would be issued in the event of a hostile bid for the company. The unwelcome suitor would have to buy the new stock as well the existing stock, making the bid much more expensive.

Few on Wall Street had heard of City Light until it went public with its proposal to acquire Edison.

“If this was credible you would see more detail and it would address some of the major issues that have to be dealt with,” Scotto said. He noted that the company provided no concrete details or price, or even the preliminary type of information investors would expect in advance of a formal offer.

Terry McGann, a Sacramento lobbyist for City Light, said the company was prepared to pay a “20% to 30%” premium to shareholders for Edison, which would translate to $5.5 billion to $6 billion. Edison’s current market value is $4.6 billion.

McGann said City Light has contacted investment banking houses but conceded that it has yet to line up help in preparing its bid.

The privately held company, listed by Dun & Bradstreet as having less than $50 million in annual sales, has no experience in the utility industry. Its main business is a $60-million, 25-year contract to manage the street-light system for Long Beach.

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Times staff writers Nancy Rivera Brooks in Los Angeles and Virginia Ellis and Dan Morain in Sacramento contributed to this report.