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May 28, 2007 (11:50a) - Status Report
In the aftermath of last week's surprise Montana
PSC vote (5-0) to draft a rejection order for this deal, there has been no
shortage of speculation as to which direction Babcock & Brown will go with
respect to NWEC. Although the companies continue to claim they will not make
any final decisions until the draft order is generated and distributed, it is
abundantly clear that the PSC, and the state of Montana in general, have
absolutely no interest in non-U.S. ownership of NWEC.
Perhaps summing up this sentiment is Montana Governor Brian
Schweitzer's comment on the PSC vote:
"(P)ack your bags and ride a kangaroo
because you're not going to be in Montana."
The Governor has since come under some mild criticism for
this statement, but the concept evidently remains fully intact amongst state
politicians and the public.
The bottom line is that there is now very little hope that
this deal can be saved. Even if Babcock chooses to challenge the PSC's decision
and/or jurisdiction in the case, the expense and time required for litigation
would be hardly worth the effort.
Thus, Babcock can be expected to terminate this transaction
unless in the extremely unlikely event that the rejection order leaves open the
possibility of additional concessions. Since the odds of this occurring are
negligible, PSC rejection appears to be a simple formality at this point, which
may even be preceded by the companies abandoning the transaction.
May 23, 2007 (9:40a) - Montana PSC to Draft Denial Order
The companies have announced that the
Montana PSC has directed
its staff to generate a draft order denying the acquisition of NWEC by Babcock
& Brown Infrastructure.
An NWEC press release states the following:
"We are obviously disappointed by this
development," said Mike Hanson, president and CEO. "However, we will
wait until the written order is issued before deciding on our next steps. We
remain committed to this transaction and to working through the
process."
This is a very surprising turn of events in this case, given
that not a single intervenor requested PSC denial of the companies' application
and, perhaps more significantly, since the PSC's legal ability to actually
reject the transaction remains in doubt.
In general, when a state utility commission decides to
reject a merger transaction, the deal inevitable falls through very quickly.
However, in this case there appear to be two possible scenarios which may
facilitate deal completion. First, the draft order may actually be a means of
pressing the companies for additional concessions not previously agreed to by
the companies (or requested by intervenors), which would allow the companies to
further negotiation with the PSC staff in order to appease the regulator.
Naturally, the content of the draft order will determine if the companies are
able to meet any further conditions.
Second, the companies could pursue legal means to challenge
the PSC's authority to actually deny the transaction. This would necessarily be
a very long and arduous process and one which might actually result in the deal
being termination simply to avoid the process itself. But it is clearly an
option given the companies' long-running assertion that the PSC does not have
the legal ability to reject the transaction. It is entirely possible that the
PSC intend to use this case to establish its authority in this respect, even if
that means using the state court system to validate its authority.
At this time, it is assumed that the companies will indeed
remain committed to the transaction pending the content of the draft order. It
is obvious that deal completion is on much more shaky ground than previously
believed and it will require a very quick and very determined effort by the
companies to see the transaction through to completion.
May 18, 2007 (8:35a) - Montana PSC Status (Addendum III)
A
Montana PSC official has
provided the following clarification on the "work session" scheduled
next week in the review of this transaction:
"The PSC does not require a formal
hearing to issue decisions. They are discussed in work
sessions."
The PSC has also posted the May 22 work session agenda to
its website. The agenda states the following:
#8) 1:30 p.m. – D2006.6.82
–NorthWestern Corporation and BBIL – Joint application for approval
of the sale & transfer of NorthWestern Corp. pursuant to a merger agreement
– Discuss legal authority and legal standard and provide direction to
staff on these matters for final or proposed order. (05/22/07)
#9) 1:30 p.m. (Immediately following #8) – D2006.6.82
– NorthWestern Corporation and BBIL - Joint application for approval of
the sale & transfer of NorthWestern Corp. pursuant to a merger agreement -
Discuss case and obtain Commission direction for drafting final order.
(05/22/07)
Also, the companies filed their
final briefs on May 16, 2007. Of significance is an appendix
offered at the end of the document which outlines the conditions the companies
are willing to accept in order to receive PSC approval. The conditions appear
to address virtually every concern raised by intervenors and PSC staff.
In short, based on the information above, it now appears as
if the PSC may very well approve this transaction next Tuesday, May 22 unless
new circumstances arrive between now and that time. It is entirely possible
that the case will be decided later in the week of May 21 or even the following
week, but every indication is that the PSC will indeed act quickly to clear
this case from its docket.
May 17, 2007 (1:35p) - Montana PSC Status (Addendum II)
According to a
Montana PSC
official:
"The Commission will begin consideration of
this next week. There are two work sessions scheduled for Tuesday afternoon at
1:30."
"This" refers to the final decision in the case,
which the work shops will aim to set a formal date for issuance, based on the
post-hearing briefs. The work sessions will be open to the public and
accessible via audio feed by
following this
link.
It has been suggested on several occasions by this
publication that the PSC will expedite the decision process in this case, if
for nothing else than to unburden itself with what has become a lengthy and
tedious review. The fact that the PSC will begin the final process next Tuesday
is a clear indication that the regulator does indeed intend to act as quickly
as possible here.
Since there are no intervenors requesting a rejection of the
deal (which the PSC has yet to formally claim it has the right to do) and since
the conditions requested are well known to both the PSC and the companies,
there should be very little in the way of obstacle to reaching a final decision
within the next two to three weeks. Any additional time would simply be
delaying the inevitable unnecessarily.
Thus, conditional approval from the PSC and completion of
the transaction is currently anticipated by the first week of June, at the
latest.
May 17, 2007 (9:55a) - Montana PSC Status (Addendum)
The
Montana PSC extended the
post-hearing briefing period to May 16, 2007 at the request of the
companies. Obviously, the deadline for was yesterday, so the companies' final
briefs should be available within the next few days. They will be posted when
made publicly available.
May 17, 2007 (9:35a) - Montana PSC Status
The
Montana PSC has issued a
"Notice of Staff Action Amending Briefing Schedule" in the review of
this transaction. Unfortunately, the PSC has not issued the precise amendment
to the schedule as of this entry. It is presumed that the post-hearing brief
submission period has been slightly extended to allow intervenors and/or the
companies to file final briefs in the case. It is not expected that the
alteration will significantly alter the timing of the review. At worst, the PSC
will most likely add another week or two to the briefing schedule.
Details of this event will be obtained and posted
shortly.
May 8, 2007 (9:30a) - Montana PSC Status
The
Montana PSC has posted
six post-hearing briefs to its website this week. The briefs are consistent
with the intervenors' previous position on the merger and the final PSC
decision: conditions should be attached to any formal approval.
Again, the critical factor here is that no single intervenor
is requesting a flat-out rejection of the transaction, partly because the PSC's
ability to do this remains in question, and partly due to the realization that
approval is essentially a foregone conclusion in this case. The intervenors are
simply making the requisite final effort to obtain some concessions from a
company (NWEC) which has understandably become vilified over the last few years
-- particularly during these proceedings.
The next milestone date in the PSC review is May 14 -- the
deadline for company responses to the current round of briefs. After that, the
PSC is expected to establish a hearing date to issue its final decision in the
case. This is currently anticipated (by this publication) at some point in
June, at which time PSC conditional approval is expected.
May 2, 2007 (11:45a) - Montana PSC Status (Correction)
The
Montana PSC has in fact
released its June 2007 calendar. It may be accessed by
following
this link. A hearing has been tentatively scheduled for an NWEC matter
unrelated to the merger transaction (docket number D2006.6.94).
Assuming this matter is concluded on June 6, the PSC will
probably add the merger decision hearing to the June docket shortly
thereafter.
May 2, 2007 (11:35a) - Montana PSC Status (Correction)
The
Montana PSC has not
posted any new information on this case since the April 11
opening briefs filed by the companies. However, the procedural
schedule has been slightly adjusted according to an NWEC press release (the PSC
website does not reflect this revision):
| Reply Briefs |
May 7, 2007 |
| Final Company Briefs |
May 14, 2007 |
The PSC has not yet released its June 2007 calendar and the
May calendar (updated on April 26) does not list a hearing date for this case.
Thus, it can be anticipated, tentatively, that the June calendar will include a
hearing date for the final decision for this transaction. There is currently no
evidence to suggest that intervenors and/or political developments will delay
the PSC's decision beyond next month.
This publication continues to anticipated conditional PSC
approval. The deal will very likely be completed by mid-June 2007.
April 24, 2007 (12:20p) - Termination Date Extended
The companies have extended the merger
termination date from April 25, 2007, to October 25, 2007.
April 20, 2007 (3:05p) - Status Report
Over the last two weeks there has been no
substantial information coming out of the
Montana PSC to suggest
which way the voting Commissioners are leaning in this case, or an indication
of timing for the final decision. The latest procedural schedule remains intact
as of this entry: reply briefs are due on May 4. A formal hearing date for the
PSC decision should be scheduled shortly after the reply briefs are
received.
On April 11, the PSC posted the
companies' initial briefs, which were due on April 6. The
brief covers some old ground, such as the companies' assertion that the PSC
does not have the authority to reject the transaction and that the companies
will agree to certain conditions imposed by the PSC if necessary. (The list of
agreeable conditions begins on page 34.) Of particular interest is the
following passage on page three:
The critical point being "None of the intervenors who
pre-filed testimony urged rejection." This is itself is not a revelation,
but it must be pointed out as a key factor in the review going forward for one
simple reason: it is extremely rare for every intervenor to not urge rejection
in cases of this nature. If for no other reason than leverage in negotiations,
third-parties routinely call for rejection knowing full well a utility
regulator will not ultimately reject the transaction in question. The fact that
the intervenors here have all conceded approval would seem to give a very clear
indication that PSC consent is inevitable in this particular case.
As far as timing goes, it continues to be perceived that the
PSC will want to clear this case sooner, rather than later. (There has been
some mild indication that the
Duquesne Light/Macquarie deal's delay with the Pennsylvania
PUC may have an impact on the NWEC review in Montana. However, at this time
there is no substantial reason to link the two transactions based on the
development in Pennsylvania. Naturally, this issue will be followed closely
over the coming weeks.) Assuming the procedural schedule moves forward without
revision, the PSC could still conceivably issue its decision before the end of
May, and almost certainly before the end of June of this year.
April 5, 2007 (10:55a) - Montana Legislative Status
For the record, the text of Montana Bill SB558
is accessible by following
this link. Additionally, the Bill's progress may be followed
through the legislative process by following
this
link.
Not that the Montana House has not scheduled on vote on the
matter at this time, but is expected to do so within the next few days. The
current consensus among state news outlets is that the House will reject the
Bill in its current form.
April 4, 2007 (10:00a) - Montana PSC Status
The timing of the
Montana PSC review is
now somewhat clear as the following procedural schedule has been
adopted:
| Applicants Initial Briefs Applicants |
April 6, 2007 |
| Intervenors Response Briefs |
April 27, 2007 |
| Reply Briefs |
May 4, 2007 |
Although there is no set decision date, the PSC will
probably need no more than two weeks after the final reply briefs are
submitted. It can be assumed that the PSC staff and Commissioners have already
reached tentative conclusions at this point and it will simply be a matter of
setting a date for the Commissioners to vote on the deal. It would not be
surprising to see this occur in the second week of May.
Conditional approval of the transaction remains the
expectation here, with the companies accepting the conditions in order to
successfully complete the deal.
April 3, 2007 (9:15a) - Montana Status
The Montana State Senate yesterday voted (25 to
24) to pass the Bill 558 which would give the state authority to purchase NWEC
if the Babcock & Brown transaction fails. A final vote is necessary before
the Bill is send to the State House of Representatives for consideration.
However, as the Montana House is currently controlled by Republicans, the
chances of passage are currently seen as very small.
Again, this attempt by Montana lawmakers is not seen as
having a direct impact on the pending
Montana PSC review.
However, if the Bill is passed into law and the PSC staff and/or Commissioners
are indecisive in terms of approving the transaction, the state-purchase option
could become a significant factor.
The PSC has still not given any indication of timing for a
final decision. Presumably, the PSC will act after the Bill process has
concluded and will issue a decision later this month.
March 28, 2007 (11:05a) - Montana PSC Status
A week following the conclusion of the
Montana PSC hearings has
passed with no significant developments or updates from the regulator.
However, the issue involving a legislative action to control
NWEC in the even of deal failure has continued to grow in significance. NWEC
has voiced strong opposition to the bill introduced last week, thereby drawing
more attention to the matter than necessary. As noted on March 21, the bill
itself, even if passed into law, can not be considered a determining factor in
the pending PSC review, but it certainly could influence the PSC staff and/or
hierarchy if there is any level of indecision. The chances of this actually
occurring are perceived to be very small at the moment, although this will
certainly increase is NWEC continues to give the PSC reason to consider the
state option.
It is presumed that the PSC staff is currently formulating
its recommendation to the five voting Commissioners and this process should be
completed within the next two to three weeks. Thus, a mid-April PSC decision
remains possible. Slippage into late-April or early-May would not be terribly
surprising.
Conditional PSC approval remains the current
expectation.
March 27, 2007 (2:05p) - FCC Status
For the record, the FCC granted its consent for
the minor radio license transfer associated with the deal on February 16,
2007.
March 21, 2007 (11:35a) - Status Report
The
Montana PSC hearings
concluded without any new or major developments. The opposition continued in
force until the final hearing day (3/16), but, as mentioned on March 15,
opponents had very much shifted from PSC rejection to conditional PSC approval.
There have been no reports from any source to this point indicating that the
opposition to the transaction will persuade the PSC to consider rejecting the
transaction. On the contrary, it appears from most assessments that PSC
approval is essentially imminent.
In a somewhat related matter, a bill has been introduced in
the Montana legislature which would grant the state the ability to acquire NWEC
if the current transaction falls through. If the bill is passed, it would
establish a new entity created for the sole purpose of transitioning NWEC into
a state-run operation. Naturally, this development has minimal impact on the
current situation as it has yet to become a state law. However, it is not
inconceivable that the PSC might factor in this state option in the event the
regulator actually considers rejecting the BBI acquisition.
Again, PSC approval (with or without some conditions)
continues to be the expectation of this publication. This remains projected by
mid-April.
March 15, 2007 (10:35a) - Montana PSC Status
Today is the second day of hearings in front of
the Montana PSC. The
hearings are expected to continue into next week, and the PSC has indicated
that it intends to reach a decision before the end of April.
Reports from the first day of hearings suggest that
opposition to the transaction remains, not surprisingly, very strong, with the
Montana Consumer Counsel and AARP testifying against the deal. According to one
report, one PSC Commissioner echoed the concerns of opponents in questioning
NWEC with the following:
"If your company is doing so good right
now, what benefit is it to the rate payers of Montana to add another layer of
bureaucracy?"
The companies, on the other hands, will apparently focus on
the issue of "long-term stability" -- as in the stability that
Babcock & Brown can offer to NWEC, and its customers, based on NWEC's
recent emergence from bankruptcy and the overall instability of the utility
industry.
Of most interest, the opposition to this point appears to be
emphasizing conditions more so than outright rejection, perhaps due to the
realization that the chances of rejection are relatively small. Ultimately,
this will probably translate into what has been anticipated all along: PSC
consent in April with some conditions related to cost savings and rebates to
rate payers.
March 13, 2007 (9:20a) - Montana PSC Status
A District Court yesterday rejected the Montana
PSC hearing injunction lawsuit filed by the owners of two Montana power plants.
Thus, the Montana PSC hearings will commence tomorrow (3/14) as
scheduled.
Also, in an unrelated event, the PSC itself voted in favor
of allowing fifteen retired Montana Power executives to participate in the
merger review as intervenors. This is not a significant development in terms of
the review going forward, but it does eliminate the possibility of additional
legal action outside of the PSC process.
Finally, The Missoulian has published
this article detailing the testimony to be presented in
opposition to the transaction by the Montana Consumer Counsel's expert witness.
There is no new information provided here, but the information does provide a
good overview for what to expect from opponents over the course of the next few
days.
This publication continues to anticipate Montana PSC
approval during the second quarter of this year.
February 28, 2007 (12:45p) - Montana PSC
Status
A group of former executives from Montana Power
yesterday filed a formal petition with the
Montana PSC to gain
intervenor status in the review of this transaction. The petition alleges that
a $21 million settlement reached last week between the executives and NWEC may
be jeopardized by this transaction unless certain assurances are put in place
as part of the PSC approval. No decision has been issued by the PSC as of
yet.
In a related development, the PSC has decided to fight the
lawsuit filed last week by the owners of two Montana power plants, who are also
demanding intervenor status in the PSC review. A hearing has been scheduled for
tomorrow to consider this lawsuit. It remains anticipated (tentatively) that
the lawsuit will be rejected in deference to the PSC discretion to determining
intervenors on a case-by-case basis.
Finally, the Billings Gazette
reports continued concern from the public meetings being held
throughout Montana leading up to the March 14 PSC hearing. There are no
revelations coming from the meeting, yet there does not appear to be any
positive sentiment coming from consumers as the PSC review enters its final
stages.
There is still no concrete indication that the PSC staff is
inclined to recommend a rejection of the transaction. However, the companies
would be negligent not to continue to address the public concerns with as much
vigor as possible over the course of the next two weeks. If the public
opposition manifests itself into political opposition, this deal could very
easily fall apart rapidly. To this point, there has been no sign of state
politicians voicing opposition, or support, for the deal.
February 22, 2007 (10:10a) - Montana PSC
Status
The
Montana PSC has
scheduled a formal hearing for this case on March 14, 2007. Subsequent
hearing dates have not been added as of yet, but the PSC has intentionally left
the docket clear from March 15 to March 19 in anticipation of additional
hearings.
The public meetings (15 in all) will conclude on March 12,
2007.
In a related matter, the owners of two independent Montana
power plants have filed a lawsuit to delay the PSC hearings, claiming they have
not been allowed to file comments in the review process. The parties are openly
opposed to the transaction and seek to force the PSC into granting intervenor
status before formal hearings proceed.
No date has been set to consider the lawsuits. However, it
is anticipated that the complaints will be rejected and the PSC hearings
allowed to start as scheduled on March 14.
February 13, 2007 (12:05p) - NWEC Editorial
Response
NWEC has
responded to the
Billings Gazette editorial of last week which recommended a
rejection of the deal by the Montana PSC. In its response, NWEC essentially
attempts to correct what it views as factual errors presented by the Gazette
and suggests that the alternative to the BBI transaction will be worse for
Montana consumers than NWEC moving forward on its own.
Of particular note, NWEC claims that it agrees with the much
publicized Montana Consumer Counsel's expert witness report, which basically
claims that BBI's future profits will be derived from an increase in utility
rates. NWEC states the following regarding the expert recommendations:
"In fact, the MCC's expert witness - who
was quoted in The Gazette opinion - has outlined seven conditions for approval
of which NorthWestern and BBI agree with most. We hope to work through our
differences with the recommendations and reach an amicable agreement we can all
live with."
This seems to be the proper posture for the companies to
assume heading into the critical Montana PSC hearings next month. If NWEC and
BBI truly intend to negotiate in good faith with the PSC and intervenors, they
should have little difficulty in ultimately obtaining the final regulatory
approval for this transaction.
February 12, 2007 (1:30p) - Status
Report
The first public meeting will be held today at
6:30pm (MST) as part of the Montana PSC review of this transaction. This will be one of
several public meetings scheduled in advance of the PSC hearings, which remains
scheduled (tentatively) to begin on March 14, 2007 (see December 13 update for the current procedural
schedule).
As the hearing dates approach, the companies and public have
been increasingly active in campaigning for and against the transaction. Last
week, BBI released earnings projections that claim a three-fold increase in
revenue over the next 40 years, which economists and consumer groups are
attributing to increased rates passed on to current NWEC customers. The
forecast has elicited
this Billings Gazette recommendation against the transaction.
The editorial concludes:
"The Montana Consumer Counsel's expert has
concluded that the sale is fraught with potential peril for Montana. BBI and
NWE dispute his conclusions. The five elected members of the Public Service
Commission must decide whose assessment they trust.
"The answer is obvious. In the best interest of Montana
consumers, the commission should just say no to this deal."
In response to the growing opposition filings submitted to
the PSC, the companies have filed a series of rebuttals, which may be accessed
by following this link and scrolling down towards the bottom of the
page.
The next few weeks will undoubtedly see even more efforts by
the companies to sway public opinion, as well as growing opposition from
consumers (groups and individuals) at the public meetings.
The current assessment of the Montana PSC remains fairly
positive with respect to the companies ultimately obtaining PSC approval. The
opposition surfacing now are not at all surprising given the magnitude of the
deal and relatively isolated geographic dynamics involved. Montana consumers
understandably are concerned with the future of NWEC or, more specifically, how
their utility rates will be affected by a non-U.S. entity in control.
Nevertheless, there have been no signs from the PSC itself
of impending problems with the review of the deal. While opposition could very
well develop within the PSC over the next month, it has not happened as of yet
and this bodes well for the companies.
Reports from the public meetings will be posted as they
become available.
January 24, 2007 (11:30a) - Status
Report
The companies are continuing their vigorous
publicity campaign leading up to the March
Montana PSC hearings.
Currently, the efforts are focusing on media outlets, where
company representatives are providing interviews with editorial boards, which
then produce reports for public consumption. This
1/19 Independent Record article reiterates BBI's claim that it
does not intend to re-sell NWEC for a profit in the near future and stresses
NWEC's last "10 years of turmoil" as a rational for the
transaction.
As noted last week, this strategy is perceived as savvy in
terms of going into the final regulatory process on a positive note. Despite
continued concerns being expressed by consumers in Montana, the publicity
generated by the current efforts should go a long way in appeasing public
doubts as the hearings approach.
Still no word on the FCC review process. It continues to be
expected that the companies will file the necessary license transfer
applications in a February/March time frame, with the expectation that FCC
consent will be obtained shortly before
Montana PSC
consent.
January 17, 2007 (10:45a) - Status
Report
In advance of the March
Montana PSC hearings,
the companies have begun a publicity campaign to assure consumers and the
regulator that this transaction will ultimately result in long-term benefits in
the state. The campaign is apparently the result of recent state public polls
which show that a majority of Montana's citizen remain opposed to the sale of
NWEC. One of Babcock & Brown's key points of contention is that it does not
intend to re-sell NWEC in the near future in order to turn a quick profit from
the current transaction.
Naturally, this type of public relations campaign can only
serve to help the cause as the Montana PSC hearings draw closer. The idea here
is more to ease the tension of the public backlash sure to surface at the
hearings and to make the overall review process proceed with as little friction
as possible. The Montana PSC will almost certainly approve the transaction, it
is simply a matter of how much delay will be involved as a result of public
concerns.
Additionally, the FCC review process remains on hold at this
time. NWEC claimed last month that the intention is to obtain FCC clearance
during the first quarter, but this is clearly not a major factor at the moment.
December 15, 2006 (10:55a) - FCC Status
The FCC license transfer applications have
not been filed as of today. The companies have intentionally withheld
the applications in order to time the process with the final state regulatory
review in Montana.
The FCC applications are expected to be filed within the
next few weeks and it is fully expected that the license transfers will be
granted during the first quarter of next year.
Details of the FCC review will be posted when made
available.
December 13, 2006 (1:40p) - Status
Report
TheSouth Dakota PUC determined yesterday (12/12) that it does not
have jurisdiction over this transaction, thereby clearing the transaction to
proceed in that state. This leaves the
Montana PSC as the lone
remaining state regulatory obstacle in the transaction.
The Montana PSC's remaining procedural schedule is as
follows:
| December 15, 2006: |
Final day for written discovery on
Applicants’ additional issues testimony. |
| December 18, 2006: |
Final day for Applicants to respond to
discovery on Applicants’ rebuttal testimony and intervenors to respond to
discovery on intervenor response testimony, if any. |
| January 5, 2007: |
Final day for Applicants’ response to
written discovery on additional issues. |
| January 19, 2007: |
Final day for intervenor testimony on
additional issues. |
| February 2, 2007: |
Final day for discovery on intervenor
additional issue testimony. |
| February 16, 2007: |
Final day for intervenor response to discovery
on additional issue testimony. |
| February 28, 2007: |
Final day for Applicant rebuttal testimony and
intervenor response testimony, if any, to intervenor pre-filed testimony on
additional issues. |
| March 8, 2007: |
Final day for Pre-hearing
Memorandum. |
| March 14, 2007: (Tentative)
|
Hearing commences and
continues from day to day until concluded. |
Thus, a final decision from the Montana PSC currently
remains on schedule for sometime in mid/late-March of next year. This will very
likely be the last regulatory hurdle for the deal, although the FCC review of
various license transfers remains in progress as of this update.
It is anticipated that the FCC approvals will be granted
long before the Montana decision is issued next year. Details of the FCC review
will be obtained and posted shortly.
May 1, 2006 (10:15a) - Status Report
Not surprisingly, reaction to the Babcock &
Brown deal from the MPPI consortium has been decidedly negative. Some city
officials, including former Missoula Mayor Mike Kadas, have indicated interest
in taking legal action to block the transaction from proceeding. Additionally,
South Dakota PUC members have publicly stated concerns for the deal, citing
non-U.S. ownership of NWEC's power generating operations.
The concern/opposition is essentially a 'sour grapes'
situation with very little merit or chance of actually affecting the current
merger agreement. MPPI was never a serious contender for NWEC despite its
efforts and seems to have been more a vehicle for publicizing political
agendas. It is presumed that the Babcock deal will serve the same purpose over
the coming months.
With respect to the SD PUC and other potential state PUC
reviews (Montana and Nebraska), non-U.S. ownership of a utility is simply not
an factor in which the deal can or will be blocked. There is certainly more
than enough precedent for this type of deal and the companies would not have
proceeded with the transaction if there were any serious legal obstacles with
respect to ownership transfer. In fact, it is still unclear at this point if
the SD PUC even has jurisdiction in this case, so Commissioner concern could be
effectively moot.
In short, NWEC obtained the best possible deal available
during a very contentious and complicated situation. Black Hills has announced
it will no longer pursue a merger agreement and MidAmerican and Xcel have shown
no additional interest in entering discussions for a possible deal. It is
currently anticipated that Babcock & Brown will successfully complete the
transaction, under the current terms, during the first half of 2007.
April 26, 2006 (8:35a) - Definitive Merger
Agreement Announced
NWEC has announced a definitive agreement to be
acquired by Babcock & Brown Infrastructure for $37 per share. An NWEC press
release states the following:
"The transaction is subject to the approval
of NorthWestern's shareholders and customary regulatory approvals, and is
expected to be completed in 2007. Upon closing NorthWestern will cease to be a
publicly traded company and will become a locally managed subsidiary of
BBI."
At the time of this entry, neither Black Hills nor MPPI has
responded to the merger announcement. It is currently expected that both
entities will discontinue their pursuit of NWEC and this transaction will
proceed at the current exchange ratio.
April 26, 2006 (8:25a) - Shareholder Lawsuit
Status
Litigation in the shareholder class action
lawsuit against NWEC related to this transaction has been postponed until
May 30, 2006.
April 6, 2006 (7:55a) - MPPI Offer
Status
According to published reports, citing former
Missoula Mayor Mike Kadas, MPPI will submit a new offer for NWEC within the
next few weeks. Details of a revised offer have not been release at this
time.
It remains anticipated than any offer from MPPI will be
quickly rejected and it is assumed that MPPI will not have the resources
avaiable to continue its takeover efforts.
March 20, 2006 (10:25a) - Status Report
MidAmerican Energy and Xcel Energy are now
believed to be interested in NWEC, according to published reports. Both
companies have not publicly commented on these reports as of yet.
If indeed either or both companies intend to make and offer
for NWEC, the pending MPPI offer will become essentially moot. There is simply
no way MPPI can offer the incentives that would be part of any MidAmerican,
Xcel or Black Hills offer.
Black Hills has been ominously silent regarding its
intentions over the last six weeks. It is presumed that the MidAmerican and
Xcel revelations will motivate some sort of action by Black Hills within the
next several weeks. It would also not be surprising to see MPPI increase its
offer slightly at some point in April, but it is fully expected than any new
offer from MPPI will be summarily rejected by NWEC.
March 1, 2006 (2:30p) - Status Report
NWEC stated the following in a conference call
earlier today:
"The board has not made a decision to sell
the company or to pursue any specific strategic alternative. There is no
guarantee that a transaction of any kind will take place."
The company expects to complete its strategic alternative
review in the early part of the second quarter of this year. This publication
continues to expect a development involving Black Hills to surface within the
next two months -- most likely a revised offer by Black Hills resulting in a
definitive merger agreement.
February 8, 2006 (8:55a) - Black Hills
Confidentiality Agreement Announced
Black Hills late yesterday announced the signing
of a confidentiality agreement with NWEC, which was a major sticking point
during earlier communications between the companies.
This event signals the beginning of the process anticipated in yesterday's
update.
Additionally, NWEC issued a press release yesterday
afternoon which included the following update:
"NorthWestern has entered into
confidentiality agreements with a select number of parties who have expressed
an interest in participating in the process. Under the terms of the
confidentiality agreements, the identities of these parties will not be
disclosed. The Company expects formal due diligence to commence as early as
this week.
"At this time, the Board has not decided to pursue any
specific strategic alternative. It is expected that the Board will make its
determination following completion of due diligence and confirmation of
interest by parties, which may take several weeks. The Board has informed all
interested parties that it may terminate the process at any time and that there
is no guarantee that any transaction will take place."
With Black Hills reporting strong earnings for Q4 2005, it
would be surprising at this stage if the company does not make a valid offer
for NWEC shortly.
February 7, 2006 (1:10p) - Status Report
Very little in terms of significant developments
in this case over the last several weeks. Harbert Distressed Investment Master
Fund openly expressing concern of the NWEC Board's actions, or lack thereof,
relating to both the MPPI and Black Hills offers. Not surprisingly, the NWEC
Board has brushed of all shareholder criticism quite adequately to this point,
choosing instead to allow the 2006 Annual shareholder meeting serve as the next
venue for determining the company's course of action.
It is extremely difficult to fault NWEC's Board for its
position at this stage. There is simply no reason for the company to give in to
a politically-oriented transaction (MPPI) or a opportunistic attempt by Black
Hills. Regardless if NWEC's past difficulties, this is quite clearly a peak era
for energy/utility companies and NWEC would be remiss not to take advantage of
the current environment in order to receive as high and favorable an offer as
possible. The independent attitude given by the Board should have the desired
effect in this regard.
This publication continues to expect the MPPI offer to fall
apart fairly quickly once Black Hills, or another bidder, makes a more
attractive offer for NWEC. Last year's NWEC annual meeting was held on July 14,
so it can roughly be projected that an renewed effort to sway the NWEC Board
will occur over the course of the next two to three months, in anticipation of
this year's annual meeting.
December 12, 2005 (12:05p) - NWEC Response to
Black Hills
NWEC has delivered a strong and straightforward
response the BKH's letter issued last week. NWEC
essentially rebukes all of BKH's claims regarding shareholder sentiment and the
methods in which the confidentiality agreement discussions have proceeded.
Excerpts of the NWEC response include the following:
"Our board of directors has demonstrated a
good faith effort to cooperate with Black Hills regarding a confidentiality
agreement that would enable both parties to move forward with formal
discussions. Within 48 hours of receiving your November 21, 2005 letter, we
sent you a confidentiality agreement for your consideration. Rather than
engaging in good faith discussions with us, Black Hills elected to publicize
its position directly to the press and certain of our shareholders.
"We would like to make one thing very clear to Black
Hills and any other potential transaction partner: The board of directors of
NorthWestern does not intend to negotiate with any party through the press or
through certain of its shareholders. If Black Hills is serious about a
potential transaction with NorthWestern then Black Hills should negotiate in
good faith directly with our management and board. Black Hills should
understand that the continued practice of communicating with certain of our
shareholders and through the press, and your refusal to agree to customary and
reasonable standstill provisions may place Black Hills in a disadvantageous
position with respect to other parties who have or may in the future express an
interest in initiating discussions with us and respecting our process of
reviewing all strategic alternatives.
"Black Hills must now make a fundamental decision
whether to negotiate in good faith with our management and board of directors,
or to continue to act in concert with certain of our shareholders in an effort
to coerce our management and board to abandon or abbreviate its deliberative
exploration of strategic alternatives. We are open to further dialogue with
Black Hills regarding a confidentiality agreement that would enable both of our
organizations to move forward with formal discussions and due diligence. We
also are open to exploring with you a possible combination of our companies.
But we are unwilling to short-circuit our process, or agree to permit
NorthWestern to be subjected to coercive tactics."
This is not the response generally expected by this
publication and clearly indicates that NWEC intends to stand firm in its
efforts to obtain the best possible situation. Unfortunately, the company's
apparent unwillingness to compromise may result in no deal at all with BKH and
will force the company to again focus on rejection MPPI's efforts.
December 9, 2005 (12:05p) - Black Hills Letter
to NWEC
BKH has sent a
letter to
NWEC regarding it unsolicited offer and the confidentiality agreement
required by NWEC. Excerpts of the letter include the following:
"Putting aside this history, we remain
confident that if we are able to agree to reasonable terms of a confidentiality
agreement, we could efficiently conduct requisite due diligence and negotiate
appropriate definitive documents over the next six to eight weeks. Nonetheless,
despite your current insistence to the contrary, we cannot agree to the
extended standstill restrictions you have proposed be included in a
confidentiality agreement. After further review with our advisors, we believe
that conditioning negotiations on our agreement to onerous standstill
restrictions that would survive for a full year without any exception for
allowing us to pursue necessary steps to consummate a transaction is
inappropriate and inconsistent with other relevant transactions.
"Given the importance of this transaction for both
companies’ shareholders and customers, and the response we have thus far
received from you, we cannot accept restrictions on our ability to pursue a
combination with NorthWestern beyond those that would be reasonably limited in
scope and duration. In the event you determine to engage in earnest
negotiations, we stand ready to execute a confidentiality agreement that meets
the reasonable requirements of both companies."
This stance by BKH, although somewhat negative, is a
reasonable and direct response the NWEC's apparent inability (or indifference)
to make what seems to be a relatively straightforward decision. NWEC's Board
will alienate a large portion of the company's shareholders by not compromising
with BKH on the confidentially agreement and entering into serious merger
discussion. It is assumed by this publication that the NWEC Board will
ultimately respond favorably to BKH's ultimatum and allow formal negotiations
to proceed within the next several weeks.
MPPI will most likely perceive BKH's attitude as another
opening towards pursuing an acquisition of NWEC, but it remains perceived that
an NWEC-MPPI transaction is extremely unlikely to succeed.
December 7, 2005 (10:55a) - Black Hills Letter
to NWEC
BKH has sent a
letter to
NWEC regarding it unsolicited offer and the confidentiality agreement
required by NWEC. Excerpts of the letter include the following:
"Putting aside this history, we remain
confident that if we are able to agree to reasonable terms of a confidentiality
agreement, we could efficiently conduct requisite due diligence and negotiate
appropriate definitive documents over the next six to eight weeks. Nonetheless,
despite your current insistence to the contrary, we cannot agree to the
extended standstill restrictions you have proposed be included in a
confidentiality agreement. After further review with our advisors, we believe
that conditioning negotiations on our agreement to onerous standstill
restrictions that would survive for a full year without any exception for
allowing us to pursue necessary steps to consummate a transaction is
inappropriate and inconsistent with other relevant transactions.
"Given the importance of this transaction for both
companies’ shareholders and customers, and the response we have thus far
received from you, we cannot accept restrictions on our ability to pursue a
combination with NorthWestern beyond those that would be reasonably limited in
scope and duration. In the event you determine to engage in earnest
negotiations, we stand ready to execute a confidentiality agreement that meets
the reasonable requirements of both companies."
This stance by BKH
December 7, 2005 (10:55a) - Status
Report
NWEC yesterday issued a press release announcing
it intends to "Evaluate Strategic Alternatives" including the
unsolicited Black Hills offer. In respose, MPPI issued the following
statement:
"We are pleased with NorthWestern's
announcement that it will immediately commence an evaluation of the Company's
strategic alternatives. We look forward to participating in the
process."
This publication continues to expect NWEC to essentially
ignore MPPI's efforts and will most likely reach a formal merger agreement with
BKH at some point in January 2006.
December 2, 2005 (2:35p) - Status Report
According to
The Missoulian, Missoula
Mayor Mike Kadas claims the five cities that comprise Montana Public Power will
continue to pursue the acquisition of NWEC, regardless of the BKH merger
proposal. While admirable and, perhaps more important, politically prudent,
MPPI's efforts are currently perceived to be virtually pointless.
Additionally, BKH's officials have already begun informal
meetings with the Montana PSC, which will review any deal involving NWEC.
Although BKH is presenting a somewhat passive stance regarding a formal merger
agreement, it is anticipated that the meeting with the PSC will not discourage
BKH from moving forward in reaching a merger agreement in the near future.
MPPI can be expected, via Mayor Kadas, to remain present
throughout the NWEC/BKH process (including as an intervenor in the PSC review),
but will eventually drop its efforts to get NWEC's interest, let alone the
company's attention.
An NWEC-BKH agreement is tentatively anticipated shortly
after the new year.
November 28, 2005 (8:00a) - Black Hills Merger
Proposal Announced
On November 23, Black Hills Corp. (BKH)
announced an unsolicited merger proposal for NWEC with the terms of between $33
to $35 per share. NWEC responded with the following statements:
"The Company's Board of Directors,
consistent with its fiduciary duties and in consultation with its financial
advisor and legal counsel, will meet to review and evaluate the Black Hills
proposal and other potential strategic alternatives."
The BKH offer is currently perceived as a far superior offer
than the Montana Public Power, both in terms of offer price and ability to
actually complete the transaction. It is unclear if NWEC will actually accept
this improved offer, but it will not be at all surprising if the NWEC Board
recommends the new offer, if only to destroy MPPI's efforts.
November 14, 2005 (8:20a) - Status
Report
The Great Falls, Montana City Council will vote
tomorrow on MPPI's requested additional $100,000 for due diligence in the
proposed transaction. Similar votes have been scheduled in Bozeman City
(November 21) and Butte-Silver Bow (November 30). The respective City
Councils/Commissions are currently expected to approved the additional funding,
but will very likely not approve any further increases.
Additionally, last week NWEC repeated its intent to reject
any revised offer submitted by MPPI in the future.
November 8, 2005 (9:15a) - Helena City
Status
The Helena City Commission yesterday approved
the allocation of $100,000 to add to the bidding process for NWEC. Helena City
is the second of five to approve the additional funding.
This publication continues to expect NWEC to reject the
offer, regardless of the remaining cities' ability to contribute additional
funding.
October 25, 2005 (10:30a) - Missoula City
Status
According to
The Missoulian, the
Missoula City Council met last night to hear a request for an additional
$100,000 from the city's Mayor, and to hear NWEC's arguments against the buyout
proposal. It is assumed that the other four municipalities (Great Falls,
Bozeman, Butte-Silver Bow and Helena) are engaged in similar fund increase
requests at this time, and that NWEC is opposing these efforts in each case.
Clearly, the consortium that comprises Montana Public Power,
Inc. will need to generate a large amount of funding to make the offer worthy
of consideration from the NWEC Board's perspective. Assuming that all five
cities are requesting similar amounts, and assuming that these requests are
approved, it is perceived that the next increased offer will remain far short
of obtaining NWEC's interest.
October 24, 2005 (8:35a) - NWEC Board Rejects
Offer
The NWEC Board of Directors formally rejected
Montana Public Power's most recent offer on Friday (10/21).
An NWEC press release states the following:
"After evaluating the revised MPPI
acquisition proposal with its independent legal and financial advisors,
NorthWestern's Board concluded that the terms of the revised MPPI proposal are
functionally equivalent to the previous MPPI proposal and that the revised
proposal fails to adequately address the unacceptable legal, regulatory, tax
and financing risks associated with a proposed MPPI acquisition of NorthWestern
and fails to provide adequate financial consideration."
It is the general impression of this publication that MPPI
will not significantly increase its offer, nor the breakup fee, for its
proposed transaction. As MPPI is essentially a consortium of municipalities, as
opposed to a centrally-organized corporation, it is simply not reasonable to
expect the citizens of the participating cities to allow a further increase in
the offer. But again, as there is virtually no reference available for this
type of situation, this opinion is not terribly firm.
October 21, 2005 (9:10a) - NWEC Shareholder
Endorsement (MPPI Press Release)
From an Montana Public Power, Inc. press
release:
"We appreciate the support we have received
for our proposal from Harbert Distressed Investment Master Fund, Ltd.,
NorthWestern's largest shareholder, that was expressed in Harbert's recent
letter to NorthWestern's Board of Directors. In addition, there have been
expressions of support from other NorthWestern shareholders who, together with
Harbert, represent more than 50% of NorthWestern's outstanding shares. These
shareholders have expressed agreement with our view that MPPI's offer reflects
an attractive valuation for NorthWestern and can be successfully consummated.
The time is long overdue for NorthWestern to uphold its fiduciary obligations
to its shareholders. We urge the NorthWestern Board immediately to enter into
good faith negotiations with MPPI for the sale of the Company."
This publication currently has no sense for the chances of a
formal agreement being reached, or the timing of any potential transaction
involving Montana Public Power. There is simply no frame of reference for a
situation of this nature.
Very generally speaking, if NWEC does agree to the current
offer, the reuglatory processes should be fairly straightforward and completed
without significant delays. Assuming a deal is reached before the end of this
year, the transaction could conceivably close in the latter part of the second
quarter, or early part of the third quarter of next year.
October 20, 2005 (9:45a) - Timelines - Recent
Utility Transactions
| Transaction |
Length
(Days) |
$ |
HSR |
SEC |
SEC
(PUHCA) |
FERC |
Misc |
| NUI Corp (NUI) - AGL Resources
(ATG) |
139 |
691m |
30 |
28 |
94 |
n/a |
NJ
103
VA
81
MD
69
|
| Amer Water Works (AWK) - RWE AG
(DAX: RWE) |
481 |
4.6b |
30 |
27 |
n/a |
n/a |
States (12)
See File
|
| Seabrook Consortium - FPL
Group, Inc. (FPL) |
201 |
837m |
> 30 |
n/a |
n/a |
n/a |
NRC
165
IRS
150
States
NJ, DC, MD, DE, VA, PA
(See File)
|
| Lattice Group PLC - National
Grid Group PLC (NGG) |
183 |
21.7b |
n/a |
n/a |
131 |
n/a |
|
| Conectiv (CIV) - Potomac Electric
Power (POM) |
536 |
2.2b |
30 |
34 |
370 |
136 |
States
NJ, DC, MD, DE, VA, PA
(See File)
FCC
155
|
| PowerGen PLC (PWG) - E.ON AG
(EON) |
449 |
7.4b |
30 |
n/a |
282 |
122 |
Exon-Florio
34
EU / OFGEM
39
|
| RGS Energy Group (RGS) - Energy
East (EAS) |
484 |
1.4b |
30 |
40 |
374 |
133 |
|
| NRG Energy (NRG) - Xcel Energy
(XEL) |
80 |
|
|
24 |
77 |
|
|
| Orion Power (ORN) - Reliant
Resources (RRI) |
146 |
2.9b |
62
(Re-filed) |
31 |
|
115 |
NY PSC
56
|
| Niagara Mohawk (NMK) - National
Grid (NGG) |
514 |
3b |
>30 |
|
344 |
122 |
NY PSC
316
VT PSC
41
Exon-Florio
30
UK OFT
30
Virginia
131
Kentucky
33
|
| Aquila, Inc. (ILA) - UtiliCorp
United Inc. (UCU)$ |
62 |
|
n/a |
|
n/a |
36
(shares only) |
SEC
24
|
| GPU, Inc. (GPU) - FirstEnergy
Corp. (FE) |
455 |
11.9b |
30 |
|
373 |
126 |
NJ
NY
PA
NRC
160+/-
FCC
90+/-
|
| IPALCO Enterprises (IPL) - AES
(AES) |
254 |
2.15b |
10 |
|
148 |
115 |
IN
|
| Columbia Energy (CG) - NiSource
(NI) |
248 |
8.5b |
30 |
|
200 |
106 |
PA
VA
KY
ME
|
| Unicom Corp (UCM) - PECO Energy Co
(PE) |
394 |
31.8b |
|
|
217 |
153 |
NRC
295
|
| New Century Energies (NCE) -
Northern States (NSP) |
513 |
4.8b |
30 |
|
198 |
140 |
TX
NM
WY
CO
ND
MN
AZ
KS
|
|