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Iberdrola’s proposed acquisition of Energy East is likely to see a decision from the New York Public Service Commission (PSC) by late June or early July, an intervener, who is listed as an active party in the litigation proceedings between the PSC staff and the buyer consortium, told dealReporter.
A second intervener said the PSC decision might not be made before July. The closing date for the merger has not been changed from the end of first half of 2008, said a person familiar with Iberdrola. “We are still hoping for a June decision from the commission.”
Though the timeline to close the deal had not been extended yet, it “will not matter if the timetable slips a bit,” said a second person also familiar with Iberdrola. “There is no fixed final deadline to complete the transaction but we would not want it to go on for a long time. We expect the deal to close before the end of summer.”
If the PSC does not make a decision before the agreed upon 25 June termination date, either party can walk away from the transaction without penalty. The termination date, the second person said, has not yet been extended as it is “still early days.” The second person, however, said, the merger agreement allows the termination date to be extended if both parties give their consent. “It [extension] is not a priority at this stage.”
Meanwhile, a news report in Spain speculated that Iberdrola was likely to forgo its acquisition of Energy East to finance a possible bid for British Energy. The second person dismissed the report as “guesswork”. According to the second person, Iberdrola is not withdrawing from its proposed acquisition of Energy East. “We are still in the process even though it may seem little bumpy at times.”
Iberdrola will only walk away from the deal if the PSC imposes conditions that are unreasonable, said the second person. “That is yet to happen. We have to see what the judge’s recommendation is, followed by the commission’s decision and to what extent Iberdrola thinks it can meet those conditions. There is a possibility negotiations could continue even after that,” the second person added.
Iberdrola chairman Ignacio Sanchez Galan said recently that if the deal lapsed, for whatever reason, the company would seek to invest the EUR 6.4bn it has set aside in renewable energy opportunities in the US. The Spanish power major wants to be in New York and “there is a lot about the opportunity [Energy East] that is attractive,” said the first person.
The US is a priority market for Iberdrola and the company was planning to invest a large amount of money in renewables, the second person said. “If Energy East does not materialize, we will look at other possibilities but to tie it in hypothetical situation like British Energy is stretching it,” the second person added.
PSC presiding Judge Rafael Epstein is considering the latest round of briefs and replies and is compelled to issue a recommendation to the commission, both interveners said. Both parties had agreed on a May 23 date for the issuance of that recommendation, and Judge Epstein had expressed confidence that he could comply, according to the first intervener.
Iberdrola had sought the judge’s recommended decision “to be as early as May 23 or shortly thereafter,” the first person said.
The judge’s recommendation to the PSC will likely be made public, and the parties will have one last chance to air their objections to the recommended decision, said the first intervenor. “We expect briefs on exceptions to be filed within 10 days after the issuance of the recommended decision,” the first person said.
The first intervener opined that the PSC staff had not made compelling arguments and that Judge Epstein would probably make a recommendation that is more in line with the Iberdrola positions. Iberdrola has agreed to divest the fossil generation in New York but is committed to non-fossil assets in the state, said the first intervenor.
Only the PSC staff has held onto strong objections to the deal, concluded the first intervener summarizing the positions of all listed interveners. The first intervener said the PSC staff is essentially “on their own island” in calling for hundreds of millions of dollars in “positive benefit adjustments in rates” and other divestitures.
Iberdrola had offered to contribute positive benefit adjustments - worth USD 200m - which are likely to be adopted immediately after closing the acquisition, resulting in USD 50m in savings to the rate payers, the first person explained. “These positive benefit adjustments have been offered even though it is not a synergy transaction and there are no synergies savings to fund the rate concessions.”
The PSC staff is suggesting over USD 600m for positive benefit adjustments - which “has become one of the sticking points,” the first person noted.
Another condition that has always been a part of the staff’s proposal is that of a “golden share.” The golden share would be the one issued to a person of the commission’s choosing and would represent the right to veto the parent company from directing the operating subsidiaries to enter voluntary bankruptcy.
The golden share was issued in the recent National Grid-Keyspan merger and is designed to protect an acquired company from the financial issues facing the parent, the first intervener said. The first intervener claimed that given this deal is an equity deal, and National Grid-Keyspan was highly leveraged, the golden share seemed “out of place” and would likely not be upheld in the recommendation or the final judgment.
It was said that Iberdrola’s position continues to be that the golden share is not warranted. The second intervenor maintained that the PSC staff and Iberdrola have continued to stand by their positions.
After the recommendation is issued and the parties’ briefs filed, the PSC will hold two public hearings, it was said. The first will give the commissioners a chance to sequester senior PSC staffers as well as hear directly from Judge Epstein. The second hearing will likely be when the commission holds its final vote and issues a binding decision.
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