mwm711

Merger Review: Puget Energy

And any word from Macquarie? It appears that they haven't said anything since the WUTC order or the expiration of reconsideration deadline before the WUTC.

They way I read the WUTC's order, PC would have had to move for a stay within a request for reconsideration which it did not do. The filing of an appeal in the circuit thus could not operate as a stay. Also PC's statement after the WUTC order did not sound like a party intent on appealing which it did not at least before the WUTC.

If the deal doesn't close before 1/21/09 then does not PSD have to pay .25 dividend?

Merger Review: Puget Energy

Assuming the deal closes after January expiration, does it make more sense to buy February $25 calls?

Merger Review: Puget Energy

Excellent analysis. If the deal is supposed to close by 1/22/09 is there a potential problem with buying January calls that expire on 1/17/09?


On Jan 08 06:26 PM MTJ489 wrote:

> The WUTC order provides a scathing commentary about how much the
> Public Counsel has been off the mark in its arguments. Apart from
> Commissioner Jones' dissent, WUTC's majority view was that the deal
> was entirely consistent with the public interest and will not harm
> ratepayers. Against this backdrop, I doubt that the PC will appeal
> the decision. I think the more likely scenario would be that the
> Acquirers (the investor consortium) will seek to clarify the WUTC's
> order by filing a petition. This will have the effect of delaying
> the closing by weeks or months. And, as everyone knows, pending
> mergers don't age like fine fine, so any delay beyond the normal
> 15 days following the "Final Order" (as defined in the merger agreement),
> which comes up on January 22nd, will not be viewed well by the market.
> I believe that this is one of the reasons that the spread is trading
> wide.
>
> Another reason for the wide spread is the following: According to
> the merger agreement, the Acquirers' liability is capped at $130MM
> if they were to breach the agreement. This means that if the Acquirers
> did not feel like completing this deal -- for whatsoever reason --
> they are liable to pay $130MM to Puget, but not a penny more. Recently,
> deals that have blown up frequently contained a similar clause, whereby
> the purchaser had an option to walk away by paying a nominal break-up
> fee. With the stock market having raced to the bottom, most deals
> that were cut months ago now appear highly overpriced. What have
> acquirers done to compensate for their ill-timed dealmaking? They
> have simply walked away because they were allowed to under the merger
> agreement. Were it not for this seemingly innocuous clause in the
> Puget merger agreement, I believe the spread would be much tighter.

>
>
> Having said that, I believe that this deal is not only highly likely
> to close, but close by January 22nd 2009, for the following reasons.
> If you listened to the Commission hearings in Sepember/October as
> well as read the hundreds of pages of WUTC briefs filed by the Joint
> Petitioners (Puget and the Acquiers), which I did, you will see that
> the Acquirers were simply "pounding the table" on wanting to complete
> this acquisition. Keep in mind that this was as recently as October
> when the financial world seemed to come to a screeching halt. Even
> at the height of the financial market meltdown, the Acquirers were
> adamant that they had the financial flexibility to not only complete
> the acquisition, but also fund billions of dollars of capital expenditures
> for the next five years -- something that Puget, without this buyout,
> will find extremely difficult to to. Acquirers were also adamant
> that the terms of the "ring-fencing&... provisions, which
> provide a margin of safety to the well-being of the "Opco" (the operating
> utility), are the best such provision of any similar transaction
> in modern history -- and the WUTC staff singularly agreed with this
> argument. Here we are -- less than 3 months after the hearings and
> the briefs and the financial world has gotten a little calmer --
> I would argue that if the Acquirers were adamant on wanting to acquirer
> Puget in October, I think they would want to acquire Puget today.

>
>
> To elaborate on this important point, I spoke with a respresentative
> of Macquarie who is close to this deal. He agreed that "nothing
> has changed" since the hearings were held and the briefs were filed
> in October.
>
> So an obvious question that comes up on all of this: Why would the
> Acquirers want to acquire Puget for an inflated price of $30/shr?
> First of all, the Acquirers are infrastructure investors,. Not only
> do they own Duquesne Power & Light in PA, they own water utilities,
> highways, bridges and tunnels all over the world. Puget is a regulated
> business that they want to own for the long-term. Many people view
> Puget as a typical LBO. That is not entirely correct. The Acquirers
> are putting up $3.3 billion in equity capital for Puget, nearly 50%
> of the enterprise value of the company. That is a lot more equity
> than your garden variety LBO that has 20% equity. What that means
> is -- the Acquirers are willing to accept a lot lower internal rate
> of return on their equity than a typical LBO. I believe this is
> because regulated businesses such as Puget generate highly predictable
> cash flows, and therefore, the hurdle rate on such stable cash flow
> stream is correspondingly lower. The Macquarie representative confirmed
> that this was the case.
>
> Without further rambling --- the point is, I believe Puget acquisition,
> although expensive by today's utility valuation standards -- fits
> the profile of what the Acquirers are looking for. If they walked
> away from this, it will take another 1 1/2 years for them to acquire
> another utility -- any utility --in the U.S. Is that worth it even
> though they would be able to buy the next one a bit cheaper? By
> the time they complete their next purchase, who knows, utility valuations
> may come back up...
>
> By the way, there was nothing in the WUTC Order that anyone should
> be comcerned about. It's a long document, but there is nothing substantively
> different than the multi-party settlement that Puget signed along
> with the Staff back in July. I would be shocked if Macquarie tries
> to put a negative spin on the WUTC Order conditions. As far as I
> know, they should be giving each other high fives since they got
> pretty much everything they were looking for in the Order.
>
> I hope this helps if you are wondering why the PSD spread is so wide.
> It is wide for the reasons I explained above. But it being wide
> presents a huge opportunity to make 10.5% in a week and a half.

>
>
> One final point -- if you want to own PSD stock, you should look
> at PSD Jan $25 calls. They are much better risk/reward than the
> stock (for reasons I won't go into here..) If you want to be really
> technical, you should buy those options and short the stock. If
> you get the "delta" right, you will make money if the deal completes,
> AND you will make money if the deal falls apart and the stock goes
> to $17.00 as long as this binary event happens before the option
> expiration next Friday.. (What a beautiful arbitrage..!!) Because,
> as much as I think the deal will get done, what if I'm wrong? I
> wouldn't want to get carried out in a stretcher...
>
> Now go and make some money........
>
> **********************...
>
>

Merger Review: Puget Energy

Assuming no party asks for reconsideration of a stay of the UTC order by today 1/9/09 when will this deal close?

Merger Review: Puget Energy

I agree that public counsel postures a nuisance points rather than substantively valid points. I also agree that the majority order was strong and the dissent weak.

But is not the UTC order approving the settlement an administrative agency order from which a party may appeal to the circuit court? Assuming that public counsel has the right to appeal and exercises it, would the pendency of an appeal in the circuit court preclude the deal from closing while the appeal is resolved?

Court proceedings in a circuit court can take time and the losing party usually can appeal the trial court ruling to a higher court.


On Jan 04 02:16 PM Jae Jun wrote:

> The last 8-k filing mentioned that the only company to not have submitted
> their approval was PSE (subsidary of PSD).
>
> Obviously PSE wont be challenging and I think the Commission has
> had enough of the public counsel from what I read in the filings.
>
>

Merger Review: Puget Energy

Can public counsel appeal and if so would that delay the closing?

Puget Energy's Merger - Why Does Public Counsel Want It Delayed?

Does public counsel have the right to appeal the UTC's order? If it does, would that delay the closing?

Puget Energy Update: Merger Is Currently On Track

But why is the stock dumping and been dumping with big lots if approval is imminent?

Puget Energy Update: Merger Is Currently On Track

Does not public counsel's unabashed opposition to this deal present a significant obstacle?