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McQuiston: Bidding On CVPS

06/30/11 7:55AM By Timothy McQuiston
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(HOST)  Commentator Tim McQuiston observes that in an an offer to buy CVPS, GMP owner Gaz Metro just may have made the quintessential "offer we can't refuse."

(MCQUISTON) Unless a whopping new bid is offered, it appears that Central Vermont Public Service and Green Mountain Power will finally merge into one company. 

After decades of merger talks and some scary financial times for both, CVPS, the state's largest utility, and GMP, the second largest, are both in relatively good health. CVPS recently had its investment rating upgraded from junk bond status and has received national recognition for corporate governance. Near bankruptcy in 1998, GMP has reinvented itself into a nimble electric company relying on low-carbon power sources.

GMP is owned by Quebec's Gaz Metro, which also owns Vermont Gas Systems.

Gaz Metro now wants to buy CVPS and merge the two electric companies.

CVPS and GMP customers enjoy some of the lowest electric rates in the Northeast. GMP has the lowest overall rates in New England and CVPS is third lowest.

So a CVPS-GMP merger could result in even lower rates. GMP is saying that through a reduction in some executive staff, other redundancies and by moving CVPS' headquarters to downtown, the new company will save 144 million dollars over 10 years. Gaz Metro even envisions making Rutland a "solar city," with new solar energy facilities. The name of the new company has not been proposed yet. But GMP President Mary Powell would very likely be the president of the new company.

Other Vermont utilities and their customers around the state, which are paying upwards of 33 percent more than GMP, might be grumpy about this whole thing, as in "buy us, too, please"- but that ain't gonna happen. This is a two-player deal.

CVPS, meanwhile,  already has a good offer from Fortis Inc, a large energy company also based in Canada. The Fortis deal also offers shareholders a premium and furthermore guarantees full employment to current CVPS staff. This puts CVPS executives in a tough spot. They might have to recommend an offer to their board which will cost them their jobs.

While the CVPS board has a fiduciary responsibility to shareholders, the Vermont Public Service Board, which must approve any deal, will judge the offer based on the greater good to the public. In either regard, however, the Gaz Metro offer does look superior, based on a slightly better share price, the $144 million savings, a strong commitment to Vermont's transmission company, VELCO, and a few other goodies thrown in.

There is nothing to keep Fortis from making another offer, of course, or even a new player from jumping in, though that seems unlikely. The Gaz Metro offer, which Fortis calls hostile, must still be recommended by the CVPS board, voted on by shareholders, who will look squarely at the bottom line, and by regulators. But the Gaz Metro offer will be difficult for Fortis, or anyone else, to top.

As Mary Powell told us, who else is going to come up with $144 million? And I say, whoever else, better hurry up.

Note:  We'll hear another view of the CVPS bidding competition this afternoon during All Things Considered.  For more commentaries by Tim McQuiston, go to vpr.net. 


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