Pennichuck’s biggest shareholder: ‘hold’ on

You’d think that Gabelli & Company Inc. would be saying “I told you so” in the wake of the city of Nashua’s announced plans to acquire Pennichuck Corp. for $195 million, or $29 a share. Instead, the New York-based investment firm and largest Pennichuck shareholder, downgraded its recommendations from “buy” to “hold.” It was Mario Gabelli, the billionaire owner of the Rye, N.Y., company and an activist shareholder, who first suggested that the Pennichuck sell the company whole hog, rather than continue to fight the city’s takeover attempt of just the company’s waterworks. The eminent domain battle was costing both litigants millions of dollars. Pennichuck owns more than just Nashua’s water system. It also holds thousands of acres of waterfront land, runs some smaller water system and manages others. Gabelli’s early analysis concluded that it would be better to sell the whole company than fight to keep the main piece of it, even at less than the $203 million price tag the state Public Utilities Commission had placed on the utility. That was partly to save litigation costs, partly to avoid taxes and partly to avoid the PUC requirement to throw in an extra $40 million for mitigation purposes, since the water utility under the city would lose control of a lot of the watershed. The city also would get more for its money, Gabelli argued. At the time of his proposal, Gabelli said he felt an initial resistance to the idea on the part of Pennichuck and pushed to get a seat on the company’s board. He also wanted the company to move the threshold at which its anti-takeover “poison pill” provisions from 15 to 20 percent. Pennichuck agreed. Soon thereafter, the company and the city began seriously considering Gabelli’s vision, and now – if approved by two-thirds of both the shareholders and the city aldermen – would become a reality in roughly a year. So why the downgrade? Well, explained Tony Fritz, who analyzes water companies for the billionaire, Gabelli was saying that the company was worth about $30 a share all along. But before the deal was announced, it was trading in the low $20s, so purchasing would be a great deal, whether the company was sold for the price, or just went merrily along as an independent entity. But after the deal was announced, Pennichuck’s stock price gushered up to as high as $28, making $29 not such a great deal for a new investor. Given the risk of any deal not going through, this was a reasonable short-term price to hold, which is what Gabelli subsidiary GAMCO Investors Inc. – which owns about 17 percent of the stock — will be doing. “We did all right,” said Fritz. “But so did all the other investors.” — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

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