If Fortis, Inc., purchases Central Vermont Public Service, shareholders will see a 44 percent increase in the value of their stocks.
The giant Canadian investor-owned utility company, which is worth $13 billion, agreed to buy out shareholders of Central Vermont Public Service for $35.10 per share, $10.78 more per share than the strike price on close of business Friday of $24.32.
All shareholders would see a roughly $10 per share premium if the deal goes through. The directors and senior executives of CVPS stand to gain significantly more in the event of the sale because they hold stock options that boosts their premiums to between $15 and $20 per stock. The 2011 first quarter earnings for CVPS were $8.4 million, or 62 cents per share.
Former CEO of the Rutland-based company, Bob Young, who just retired as director of the board, holds 317,203 shares in CVPS, of which more than half are stock options. The 44 percent stock price hike translates into a payout of approximately $4.4 million for Young, according to information from the Securities and Exchange proxy statement filed in February. Young owns 2.4 percent of the company’s stock; he had served as CEO since 1987. Young also holds a yearlong consulting contract with the company worth $240,000. Because Young retired June 1 from the board of directors, he is not eligible for an additional $2.2 million under a “change-in-control” provision, according to SEC filings.
Other senior executive officials are eligible to receive $3.7 million in total “change-in-control” payments.
Pamela Keefe, the chief financial officer, could receive as much as $874,526; William Deehan, vice president of power planning and regulatory affairs could receive as much as $892,188; Joseph M. Kraus, vice president of operations, engineering and customer service could receive as much as $1,079,436; and Dale Rocheleau, general counsel, could receive as much as $863,002.
On top of the CIC payments, three of the aforementioned execs are slated to received premiums on stock options. Essentially, the directors, as is typical in publicly traded companies, have an opportunity to buy and hold stocks at a point in time, instead of having to bet on the daily market like ordinary shareholders do.
Under the Fortis deal, like Young, three other directors could see premium returns that are much higher than the $10 premium most shareholders would receive. Deehan, for example, could see $356,151 in returns on his CVPS investment; Kraus could receive $584,423 for stock options; and Rocheleau could come away with $278,772. These figures do not include equity incentive plan awards.
The new CEO Lawrence Reilly was given $100,000 worth of CVPS shares when he took Young’s place on March 1. He is expected to make a significant personal investment in CVPS stock, according to CVPS spokesman Steve Costello, and he is setting aside a monthly investment of 15 percent of his $300,000 annual salary in company shares. Reilly holds 8,311 stocks; the premium, based on last Friday’s strike price is about $68,000.
“What it boils down to listing companies requirement for each senior executives to buy shares over time,” Costello said.
Costello said under the contract Reilly can’t profit from his initial investment for three years — unless the company sells.
It’s common practice, one industry expert who asked not to be identified said, for directors and senior management to take a payout. Though the CVPS premiums to directors and the CEO may seem high by Vermont standards, the figures are low by national standards, he said — utilities of the same size in other states would receive payouts in a merger that were two to three times higher.
The other majority shareholders include BlackRock, Inc., a large money management firm, which holds 8.6 percent of CVPS stock, or 1.144 million shares; and a wealthy individual, Anita Zucker, who lives in North Carolina. She has 852,000 shares, and owns 6.4 percent of CVPS.
Central Vermont Public Service agreed to accept the merger proposal from Fortis, Inc., Canada’s largest investor-owned utility on Monday. The corporation is based in St. John’s, Newfoundland. It has offered to buy CVPS for $700 million.
The merger purchase costs are roughly divided between an assumption of CVPS’ debt worth about $230 million, and a payment of $470 million to stockholders for all 13 million shares in the company. Fortis, the largest investor owned utility in Canada, would become the sole shareholder of Central Vermont Public Service, under the plan.
Fortis offered to make $21 million available “for the benefit of CV customers, in a manner to be determined through the regulatory approval process.” It is not known whether that benefit would come in the form of energy efficiencies or investments in renewable energy, Reilly said.
The merger, which was announced on Monday, is pending state and shareholder review, which could take as long as six months. Reilly told investors Tuesday that there is not yet a “definitive plan” for submitting the documents to the Public Service Board.
According to the May 27 Securities and Exchange Commission 8K filing there is also a “break-up” or termination fee of $17.5 million, plus $2 million in transaction costs should CVPS decide not to sell to Fortis and instead strike a deal with a competing bidder with a more attractive offer.
Reilly told shareholders that Fortis has about “7,000 employees in their family of companies,” but fewer than 20 people in their headquarters in St. John’s, Newfoundland.
“Their business is to actually acquire smaller, well-run, in their view, utilities, and provide improved access to capital markets,” Reilly said. “They provide for sharing of best-practices among their subsidiaries. So we’ll be sharing best-practices with sister companies in Canada and the Caribbean over time as we go forward.”
Editor’s note: Add-ins were posted to this story at 8 a.m., June 2, 2011.
