Pennichuck warms up to Nashua sale

Pennichuck Corp., echoing the position of Mario Gabelli – the billionaire who controls the largest portion of the company’s stock — made a case for selling the entire company to the city of Nashua at its annual shareholders meeting on May 6.

The company, which owns the city’s water system, even floated a possible sale price of $31 per share – a number originally put forward by Gabelli — as a “hypothetical example” to show that an outright sale of the entire company is a “potentially better alternative” for both the city and the company than the city just taking the utility by eminent domain.

Indeed, Pennichuck said it would be willing to sell to the city even without the threat of eminent domain — for the right price.

“The responsibility of the board is to maximize shareholder value, and that’s what we are trying to do,” Pennichuck chief executive Duane Montopoli told NHBR. Montopoli was quick to emphasize that Gabelli’s numbers were used only as an example, and were not what the price at which the company was willing to sell.

While Pennichuck has said it was willing consider a city offer, and has even hired a firm (as has the city) to advise it in ongoing negotiations with Nashua, it has never before seemed to advocate the sale.

“This is exactly what citizens’ groups have advocated,” said Barbara Pressly, a former state senator and longtime advocate of such a sale, who attended the shareholders’ meeting. “Both sides have been unreasonable and foolish in this regard for so long. What a refreshing presentation.”

Nashua Mayor Donnalee Lozeau was a bit more restrained.

“The city’s objective has always been to secure and protect the water resources, city and neighbors for generations to come for the lowest possible cost,” she said.

‘Better alternative’

Nashua first attempted to seize Pennichuck Waterworks after the company made an uncompleted deal in 2002 to be acquired by Philadelphia Suburban. Since then, legal costs have climbed to a total of $7 million for the company and an estimated $4 million to $5 million for the city, according to the presentation.

Last July the state Public Utilities Commission ruled that the city could take the utility for $243 million, with $40 million of that amount to be paid into a mitigation fund to help protect the interests of customers of the corporation’s other utilities, Pennichuck East and Pittsfield Aqueduct. Both sides appealed the ruling.

Then in September 2008, Gabelli, the owner of Gamco Investors Inc., which controls nearly 15 percent of Pennichuck stock, suggested an outright sale of the entire company in conjunction with his efforts to end a “poison pill” provision that restricted him from increasing his holdings in the company. He also wanted to name several representatives on the board.

Pennichuck and Gabelli later reached a deal that increased his company’s share limit to 20 percent and gave him two board members who were elected and seated at the meeting.

The annual meeting presentation also shows that Pennichuck seems to have adopted Gabelli’s ideas about selling the entire company.

The water utility only accounts for slightly more than 70 percent of Pennichuck’s assets and revenue, according to the presentation. Yet – taking into account capital gains tax considerations and the $40 million that would be going to utilities that don’t serve Nashua – the city could buy the entire company for less, not only acquiring the two aforementioned utilities and a water management company, but the Southwood Company which owns 450 acres of land that – according to Pennichuck – could be developed.

Originally, Gabelli gave a suggested price of $33 per share, which would cost the city about $216 million, more than $27 million less than it would have to pay for an eminent domain. But after a March PUC order reaffirming the $243 million eminent domain price for the waterworks, Gabelli revised the suggested price to $31, which was called Pennichuck’s “acquisition value.” But the city would only be getting a “liquidation value” of $26 a share if it took it by eminent domain.

A “stock sale is potentially a much better alternative for both parties,” concludes the presentation. “We remain open to settlement discussions with Nashua.”

Montopoli would not comment when asked if the company had put the $31-a-share figure on the negotiating table.

Over the past month, the company’s stock has been trading in the low $20 range, but Montopoli maintained that there is usually an “acquisition premium” over the market rate when a buyer takes control of a company.

Bob Sanders can be reached at bsanders@nhbr.com.