by Kate Duffy,
Vermont Business Magazine
Breaking up is hard to do. Central Vermont Public Service will pay $19.5 million to Fortis Inc, a Canadian company that had sought to acquire the utility in a $700 million deal announced in late May. The deal dissolved when Gaz Metro, the Montreal-based parent company of Green Mountain Power, bested it with a $702 million offer to merge the two Vermont utilities.
CVPS shareholders will receive $35.25 per share, a 45 percent premium over the closing price of $24.32 immediately before the Fortis deal was announced, and 15 cents higher than the $35.10 Fortis had offered for each share.
Fortis declined to submit a counter offer. Instead, it will collect on a sort of corporate pre-nuptial agreement, receiving a $17.5 million ‘break-up fee’ and $2 million from CVPS to cover expenses associated with the failed acquisition.
‘Under our contract, Fortis had the right to negotiate with us exclusively for five days and match the terms of the proposal at that point,’ CVPS President and CEO Larry Reilly said. ‘They declined to do that and said they were not going to get into a bidding war. That gave us the ability to terminate that agreement and execute the new agreement with GazMet.’
Reilly said CVPS wired Fortis the $19.5 million on Tuesday, and Gaz Metro will reimburse it. But even with that payout, the Gaz Metro offer provides advantages for shareholders, customers, employees and the Rutland community.
‘From our perspective it clearly is a better deal,’ Reilly said. ‘For our shareholders, the payment is a little bit higher on the price per share and we have the ability to make dividends that would have been precluded under the deal with Fortis after November. It comes with substantial benefits for our customers. Fortis doesn’t have a contiguous company here. We’re going to be able to put these two companies together and realize some efficiencies from that. We’ll be able to share inventory and leverage our buying power.’
Reilly noted the Gaz Metro deal will not force it to lay off employees or relocate managers. It will retain a presence in Rutland, which will serve as its Headquarters for Operations and Energy Innovation.
Still, the company does expect that about 40 percent of the projected $144 million in customer savings associated with the merger over the next 10 years will come from downsizing the workforce.
‘That’s going to be done gradually over time through retirements and attrition,’ Reilly said. ‘It’s going to be five or six years to realize those benefits, but that is something that’s going to happen naturally. With the exception of a few executive officers, there aren’t going to be any layoffs at all in this transaction.’
Reilly himself will be one of those people out of a job once the deal is finalized. He will stay on throughout the transition and regulatory approval process, but Green Mountain Power President and CEO Mary Powell will assume leadership of the combined company. She said a merger between GMP and CVPS had been discussed for more than a decade.
‘It was the right time,’ Powell said. ‘It was the right set of factors in terms of investments that need to be made in the future. I think CV came to the same conclusion Green Mountain did a number of years ago, which is that being such a small, publicly held utility doesn’t make access to capital work very smoothly, and that there’s a real benefit to partnering up with a strong investor. Certainly in the last few weeks when we saw that that was the desire, we looked at what our value proposition was and decided to bring it to the CV board and the community. With some nice additional work from CV in terms of rounding out our proposal and the value of it to Rutland and the community that CV serves, we’re really pleased we came to this final conclusion and proposal.’
The deal must still be approved by shareholders and regulators, a process expected to take six to twelve months.
RELATED:
CVPS to merge with GMP
Tue Jul 12 2011
The leaders of Central Vermont Public Service Corporation (NYSE: CV) (CVPS) and Gaz Métro Limited Partnership (Gaz Métro) today announced that a definitive agreement for the sale of CVPS has been signed. This clears the path for the combination of CVPS and Green Mountain Power Corporation (GMP), a subsidiary of Gaz Métro, into one utility.