Central Vermont Public Service has accepted Gaz Metro’s purchase offer.
On Monday night CVPS board members voted to recommend the bid from the Montreal-based utility over the offer from Fortis, Inc., a large holding company headquartered in St. John, Nova Scotia. Gaz Metro offered $702 million for CVPS, just $2 million more than Fortis’ bid.
The deal, if it is approved by shareholders and the Vermont Public Service Board, will result in the consolidation of CVPS and Green Mountain Power, which is already owned by Gaz Metro. The merger will create one large electric utility from the state’s two biggest power companies. The new entity, which will undergo a name change, will serve 70 percent of Vermont’s ratepayers, or 250,000 households.
The two Canadian firms were in a bidding war over CVPS. Fortis had offered to pay $700 million for Vermont’s largest utility on Memorial Day weekend. The buyout would have enriched stockholders by about $10 per share.
In June, Gaz Metro upped the ante with a slightly higher purchase price for shareholders and deal-sweeteners for Vermont ratepayers, including a promise to lower power costs by $144 million over 10 years. The offer also included a pledge to give 30 percent of Green Mountain Power’s share of VELCO to the state of Vermont. The VELCO shares are to be put in a public trust and the proceeds will be used to defray utility costs for low-income Vermonters.
In a press release, CVPS officials said “the all-cash transaction will provide shareholders $35.25 per common share, a 45 percent premium” over the strike price of $24.32 on May 27.
CVPS board members terminated the Fortis offer after determining Gaz Metro’s offer was “superior.” The Rutland-based utility will have to pay Fortis a $19 million “break up” fee, which Gaz Metro will reimburse. Fortis has forgone the right to respond in five days with a counter-offer.
“CVPS and GMP will together become a stronger, more efficient enterprise, built on our deeply held mutual commitment to Vermont ,” GMP President and CEO Mary Powell and CVPS President and CEO Larry Reilly said in a statement. “We believe that this is not only a tremendous opportunity for CVPS and GMP, but for Vermont ’s economy at this critical time. Our combined resources will allow us to continue to provide competitively priced power, which is necessary for vibrant communities and a growing economy, and strengthen our commitment to low-carbon electricity in sync with the environmental ethic of our state.”
“The CVPS Board, first and foremost, had a legal responsibility to ensure the best possible deal for shareholders, but the board also wanted to ensure the best possible outcome for our customers, employees and the communities we serve, Rutland in particular,” said Bill Sayre, chairman of the CVPS Board of Directors. “GMP shared that vision, and our agreement serves all of these constituencies, and ensures CVPS’s historic commitment to Rutland will continue.”
In the press conference on Tuesday, Larry Reilly, CEO of CVPS, put the advantage to stockholders more bluntly: “Shareholders should expect to see a big check.” Reilly said investors will see a 23 cent per share increase throughout the transition period. VTDigger.org reported in May that CVPS executives will make millions in stock payouts as a result of the sale.
Mary Powell, the current head of Green Mountain Power, will be the president and CEO of the combined company. The deal will take six months to a year to complete. Larry Reilly, the CEO of CVPS, said at the press conference on Tuesday that he hadn’t been offered a place in the new management structure at this time.
Gaz Metro CEO, Sophie Brochu, said in a statement: “Our philosophy is to rely on experienced local management and provide them the capital they need to grow and thrive.”
Reilly and Powell insisted that savings will not come from mass layoffs, with the exception of “some executive officers.” Reductions in labor costs, they said will come from attrition in the workforce of both companies. The two CEOs held a telephone conference call with employees in advance of the press conference.
The $14.4 million annual savings over a 10-year period will come from the elimination of redundancies in the two companies. About 40 percent of the reductions will come from “harvested attrition” in the labor force from expected retirements and the elimination of some senior management positions. The rest of the savings will be derived from the elimination of duplicate filings with the Public Service Board and redundant services, according to Robert Dostis, head of external affairs for Green Mountain Power.
Officials say the new contiguous service territory and single operation headquarters “will streamline storm response to restore power faster and reduce the overall frequency and duration of outages.” The combined information technology resources will also mean a faster implementation of the “Smart Grid” initiative, which enables consumers to better track power usage.
Powell said the new company would consider using existing downtown real estate for its new regional executive headquarters in Rutland. Gaz Metro has offered to contribute $100,000 each to two city organizations — the Rutland Economic Development Corporation and the Downtown Rutland Partnership.
In addition, Powell announced that Rutland will be the new utility’s headquarters for operations and energy innovation. In addition, Rutland will become the state’s first “solar city.”
Powell said Gaz Metro is “excited about making Rutland the heartbeat of the operations moving forward.” She declined to elaborate on how much the new company would invest in Rutland operations, facilities and solar infrastructure.
Rutland Mayor Chris Louras, who has been skeptical of the Gaz Metro offer because of consolidation derived from vacancy savings and job losses, said he is still worried about the economic impact on the city. But he said he was assured by Green Mountain officials that as many jobs as possible would remain in Rutland.
“GMP has clearly listened to and addressed concerns Rutland leaders and residents have voiced since their offer was made public,” Louras said in a statement. “Ultimately I would have preferred that CVPS remain an independent company headquartered here, but through the agreement, significant, meaningful commitments to Rutland are made, especially related to local jobs, and therefore, I endorse the merger. Making Rutland the Headquarters for Operations and Energy Innovation is important to the region, and the commitments to downtown, REDC, solar development and ongoing community support have convinced me that the new merged company will be a leading corporate citizen just as CVPS has been. GMP’s commitment to a plan that any positions unfilled through natural turnover and retirement will be proportional, that CVPS will not face disproportional losses, and that relocations will not be used to reduce local jobs, was also critical to me and the City of Rutland.”
