Things were looking up last month for the pending $3.2-billion acquisition of New England Electric System by a British utility company. New England Electric had managed to head off a Nuclear Regulatory Commission hearing scheduled for later this month and secure that agency’s approval of the deal in early December.
That left one last approval to get before the merger with National Grid Group PLC of Coventry, England, could be completed, that of the Securities and Exchange Commission. The companies filed for SEC approval of the merger in March.
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But three business days after the merger got a green light from the Nuclear Regulatory Commission, the SEC announced it would seek public input through a proceeding called a request for comments on the implications of foreign corporations acquiring U.S. utilities.
It’s not clear what impact the request for comments will have on the National Grid-New England Electric merger, but some observers don’t expect the SEC to move on the deal until after the deadline for public input in early February.
New England Electric Spokeswoman Karen Berardino said the company still hopes to complete the merger early this year, but it recognizes that the request for comments could delay receipt of the needed SEC approval.
“At this point we’re not sure, and we will continue to work with the SEC and provide the information they need,” Berardino said. “But how it all factors out remains to be seen.”
Any delay would carry a price for National Grid.
The amount the British company agreed to pay for New England Electric has been increasing by more than $190,000 a day since Nov. 5, and the meter is still running. The merger agreement stipulates that the price National Grid must pay to acquire New England Electric’s stock increases by three-tenths of a cent per share for each day the merger isn’t completed after the November deadline.
By the time the SEC stops accepting public comment in early February, the acquisition price could have increased by nearly $18 million. That’s no small sum. But, in the context of a $3.2 billion merger, investors aren’t losing any sleep over the added cost, according to electric utilities analyst Dan Ford.
“It’s slightly more expensive, but it’s not so much that it changes the deal economics substantially,” said Ford, who tracks New England Electric for the investment-banking arm of ABN AMRO Inc. in New York. “All things being equal, you don’t like to pay that, but there it is.”
New England Electric, which is based in Westborough, Mass., has also faced delays on the road to approval of a second pending merger, its proposed acquisition of Boston-based Eastern Utilities Associates.
In Rhode Island, New England Electric owns Narragansett Electric Co., and Eastern Utilities owns Blackstone Valley Electric Co. and Newport Electric Corp. The state Public Utilities Commission pushed back hearings on New England Electric’s proposed electric rates for the combined utility after the company scrapped parts of its rate plan last month just days before the hearings were originally scheduled to begin.
Mark Vilardo, an attorney in the SEC’s utilities division, couldn’t say how long it might take the agency to compile and digest the public input it receives on the issue of foreign ownership of U.S. utilities.
But an SEC spokesman said approval of the National Grid-New England Electric merger won’t necessarily be delayed until after the agency has time to review its stance of foreign ownership of U.S. utilities in light of the comments it receives on the subject.
“Those are separate processes,” he said, referring to the mechanism for approving a specific foreign acquisition and the process of seeking input on foreign acquisitions in general. The SEC has requested the public’s input on the possible effects of such acquisitions on regulators, investors and consumers.
“We are particularly interested in the views of state regulators and consumers concerning the effects of foreign ownership on state regulation and consumer protection,” stated the SEC’s request for comments.
Some consumer advocates fear that foreign utility holding companies operating in the United States could be beyond the reach of state regulators, but National Grid Group has assured federal energy regulators that it would cooperate fully with state public utility commissions here.
National Grid would not be the first foreign corporation to own a U.S. utility if the merger is eventually approved. The SEC already has approved ScottishPower’s acquisition of PacifiCorp., an electric utility operating on the West Coast. That pairing was announced in December 1998, a week before the National Grid-New England Electric merger was announced.
But ScottishPower’s U.S. acquisition was completed in late November, while National Grid’s continues to languish. That doesn’t seem fair to analyst Ford.
“It’s disappointing, in my opinion, to use this deal as the guinea pig for determining what you should do with foreign acquisitions when you’ve already approved one,” Ford said. “It seems a little bit punitive to this particular company. They didn’t do anything to deserve this other than to be next in the queue.”
