City offers $121m for utility
NASHUA – The city is willing to exceed the $106 million offer that a Philadelphia company made last year to acquire Pennichuck Corp.
City officials announced Thursday that they have an offer on the table of $121 million, which matches the deal reached more than 18 months ago between Pennichuck and Philadelphia Suburban Corp., and includes an additional $15 million surcharge to cover tax liabilities faced by the local water company.
Mayor Bernie Streeter said he wanted negotiations between decision-makers at Pennichuck and City Hall to conclude in a friendly business deal, instead of a drawn-out battle in front of the Public Utilities Commission.
“We had hoped up to this point it would have been a friendly acquisition. Those hopes were dashed early in the process,” Streeter said. “There’s an old saying, fish or cut bait. We’re cutting bait.”
Brian McCarthy, the Ward 5 alderman and chairman of the aldermanic Pennichuck Water Special Committee, said it was apparent to him that the_company’s leaders were not interested in sealing a deal. If the two sides cannot reach an agreement, city officials have said they would move to take the company by eminent domain.
The city’s offer is based on the company’s market value when Philadelphia Suburban offered to purchase it in April 2002, McCarthy said.
“We ought to be in the right ballpark for what shareholders can expect for a return,” McCarthy said.
A two-page letter with the offer was hand-delivered to the company’s Water Street headquarters a little after 3 p.m. Thursday. Pennichuck Chief Executive Officer Don Correll could not be reached for comment Thursday afternoon.
The city’s offer is to purchase all of the company’s assets.
If a deal was reached, the company would be split among the three regulated utilities – Pennichuck Water Works, serving Nashua and the surrounding towns; Pennichuck East, serving several towns east of Nashua; and the Pittsfield Aqueduct Co., serving the downtown area of Pittsfield – and the two unregulated companies. Those are Southwood Development Corp., its real estate arm, and Pennichuck Service Corp., another subsidiary that runs water utilities in the state.
City leaders talked about handing off control of the unregulated subsidiaries to an unidentified third party.
Even if Pennichuck accepts the proposal, the Public Utilities Commission would have to sign off on the deal.
The city’s proposal comes 10 months after residents registered their displeasure at the ballot box with the prospect of an out-of-town entity purchasing the local water company.
Meanwhile, representatives of the city and surrounding communities approved a governing document to form a regional water district Thursday night. The city has indicated it is willing to hand the company over to the district to operate it as a public water utility.
Publicly announcing the buyout offer is the latest move in the chess match between City Hall and the water company.
Pennichuck announced in April 2002 that it had agreed to be acquired by Philadelphia Suburban, the nation’s second largest publicly traded water utility, in a deal initially valued at $106 million.
The news sent major ripples throughout the region, and a citizens’ group formed to protest the move. Streeter and others championed public ownership of Pennichuck, and city residents agreed in January, voting 6,525-1,867 in favor of the city proceeding with a public acquisition. Weeks later, the merger between the two companies was off.
Correll, a 25-year water industry veteran, joined Pennichuck as its president and chief executive officer in August. He had worked as a consultant to water companies on issues such as mergers and entering and exiting municipal markets.
Talks have been behind closed doors since then, as allowed by state law. The two sides never came close to inking a deal during those discussions, city leaders said.
The two sides were “extremely far apart,” Streeter said, but he declined to discuss the company’s position in detail.
In going public, officials with the city’s negotiating team suggested that pressure from shareholders could make the company more willing to settle.
Paul Remus, who is the city’s counsel on the project, said Pennichuck shareholders might want to be in touch with the company’s directors and voice their opinions on the offer.
City officials clearly do not look forward to the possibility of a costly eminent domain process.
“We’d welcome Pennichuck coming back to us with a response that was other than no,” McCarthy said.
City leaders said they put forward a fair offer. The city’s offer reflects the value of the company, since it equals the proposal put forward by Philadelphia Suburban, McCarthy said. Stockholders would be as financially well off as if the original deal had gone through, he said.
There is a difference of opinions on the matter of the tax liabilities, but that could be worked out if the two sides came to an agreement on the base price, he said. The company’s stock fell $1.10 a share Thursday, closing at $23.90.
City leaders also spoke of how the negotiations are affecting the company’s employees.
Since the merger announcement, employees at the company have dealt with an unsettling atmosphere, McCarthy said. The many city residents who work at the company have provided “sterling service,” he said.