Group probes city statements on Pennichuck stock
NASHUA – The National Association of Securities Dealers is investigating whether public statements made by city officials violated federal and state securities laws, according to Pennichuck Corp.
Pennichuck has received a letter from the private regulatory organization, saying it is reviewing trading in Pennichuck stock surrounding comments made at a Nov. 20 press conference, during which the city announced its offer to buy Pennichuck’s assets.“That afternoon, our stock traded down and had about eight to 10 times the normal trading volume,” Pennichuck Chief Executive Officer Donald Correll said Monday. “The next day, approximately 10 percent of all of the outstanding shares of Pennichuck traded in a single day.”
On Nov. 20, the day of the press conference, Pennichuck stock closed at $23.90 – down $1.10, or nearly 4.5 percent – from the previous day on trading volume of 26,400 shares, far surpassing the stock’s average daily volume of 3,000.
One day later, the stock price fluctuated wildly between $24.50 and $35 a share before closing at $28.50 – up more than 19 percent – on trading of 229,200 shares.
At that press conference, city officials said the $121 million offer matched the deal reached more than 19 months earlier between Pennichuck and Philadelphia Suburban Corp., and included an additional $15 million surcharge to cover tax liabilities faced by the local water company.
“They made reference to the fact that their offer was equivalent to the Suburban deal. . . . Their cash offer is not close to the Philadelphia deal,” Correll said.
In a letter sent to Mayor Bernie Streeter and Alderman Brian McCarthy late last week, Correll and John Kreick, chairman of Pennichuck’s board of directors, accused city officials of making “intentional or reckless misstatements” that misled the public and may be in violation of securities laws.
“The pattern of conduct and statements by city officials during recent weeks would lead a reasonable observer to only one conclusion – that the city and its representatives are attempting to gain their objective of purchasing Pennichuck through misleading public statements and improper influence on trading in the company’s stock,” Correll and Kreick wrote.
Streeter dismissed the letter, calling it a “subterfuge.” McCarthy, a leader in the city’s effort to take over the company, said any statements from city leaders have been truthful to the best of their knowledge.
Since Pennichuck leaders have not indicated what would be an appropriate price tag for the company, McCarthy said it is odd for Pennichuck to be questioning the numbers. He said the tone of the letter is combative, which has been the company’s posture since the summer.
“There’s certainly never been a tone that we were looking for a solution,” McCarthy said.
The battle between the city and Pennichuck began in April 2002 after Pennichuck got a buyout offer from Philadelphia Suburban, one of the country’s largest water companies. The companies called off the merger weeks after residents voted in January in favor of the city acquiring the company.
The tax liabilities faced by the shareholders in a municipal takeover are different than they would have been in a merger with Philadelphia Suburban, Correll said.
“They were trying to equate what was a stock-for-stock transaction with an asset purchase, which is an entirely different financial transaction,” he said.
If a tax-exempt city buys a tax-exempt company, it essentially liquidates the company and has to pay a tax for taking someone out of business, Correll said. In this case, shareholders have to pay taxes on their stock, which wasn’t the case in the Philadelphia Suburban deal.
“That is not an insignificant tax,” he said. “It’s really difficult to finally estimate it based upon the information they’ve provided.”
Pennichuck’s stock closed at $28.55 on Monday, up 17 cents a share, on volume of 18,535 shares.