Utility considers city’s offer

NASHUA – The city’s offer to purchase Pennichuck Corp. will receive “fair and full consideration,” the head of the company said Friday.

The company’s legal and financial advisers will review the city’s $121 million purchase offer, said Pennichuck President and Chief Executive Officer Donald Correll.

The company will respond to the offer in a timely fashion, he said, noting the upcoming Thanksgiving holiday could delay the response to some degree.

However, the stock market responded Friday.

The company’s stock, which closed Thursday at $23.90 a share, spiked to _as high as $35 Friday before cooling off to close at $28.50, only 50 cents off its high for the past year. The increase of 19.25 percent came on volume of 229,162 shares, far surpassing the stock’s average daily volume of 3,000 shares.

On Thursday, Mayor Bernie Streeter and Ward 5 Alderman Brian McCarthy, chairman of the aldermanic Pennichuck Water Special Committee, announced the city was offering Pennichuck $121 million for all of the local water company’s assets.

Pennichuck Corp. is made up of three regulated subsidiaries, Pennichuck Water Works, Pennichuck East and the Pittsfield Aqueduct Co., as well as two unregulated companies – Southwood Development Corp., its real estate arm, and Pennichuck Service Corp.

Last year, Philadelphia Suburban Corp., one of the country’s largest water companies, offered to buy the local water company. The companies called off the merger weeks after residents voted overwhelmingly in January in favor of the city proceeding with a public acquisition.

Streeter and McCarthy said talks between the city and the company to finish what the referendum started did not move forward, despite a series of negotiation sessions during the summer.

The city’s offer to convert the investor-owned company into a public water utility was structured to include $106 million for the company’s assets – which matches the deal reached between Pennichuck and Philadelphia Suburban – and $15 million to cover shareholders’ tax liabilities.

Correll said he would discuss the offer with the company’s board of directors.

“I have certainly kept the board of directors informed,” he said.

Asked to compare the city’s offer to the one from Philadelphia Suburban, Correll said he would not comment on the negotiations.

“I committed to the city over three months ago I would maintain confidentiality of our discussions,” he said. “I intend to uphold that agreement.”

But he said the tax liabilities faced by the shareholders in a municipal takeover are different than they would have been in a merger with Philadelphia Suburban.

“That certainly is one of the significant differences,” he said.

Streeter said the city’s offer was an effort to overcome the tax hurdle.

City leaders knew the value of the company by what Philadelphia Suburban offered, so the remaining goal was to take care of the tax liabilities with an additional $15 million, he said.

Pennichuck issued a press release Friday that stated if the offer was not accepted, the city would try to take the company’s water utility assets through an eminent domain proceeding in front of the state Public Utilities Commission.

Debra Coy, a water research analyst with Charles Schwab Capital Markets in Washington, said the spike in Pennichuck’s stock price reflects the market’s first reaction to the city’s offer.

Coy said when Philadelphia Suburban offered to purchase the company, Pennichuck stock traded at around $28 per share, close to where it closed Friday. That indicates the market perceives the $28 to $29 range as a fair value for Pennichuck stock, she said.

Many trading companies scrambled to understand what the purchase offer meant.

Andy Glasheen of Chicago-based Augusta Capital Management, which trades in Pennichuck stock, said the structure of the city’s offer is the only way to determine if it would be good for stockholders.

If the cash for the tax liabilities is divided among shareholders, it would appear to boost the stock price to a very favorable rate, he said. He said the company should continue to negotiate in good faith with City Hall.

“I have absolutely no idea why (the board) wouldn’t jump at it,” he said.