Arizona Judge Recommends Against Unisource Acquisition
Dow Jones & Company, Inc. - Nov 9
Administrative Law Judge Jane Rodda wrote that the risks of the proposed acquisition "outweigh any expected benefits" and that the deal is not in the public's best interest, according to a report by the Arizona Corp. Commission, a group similar to most states' public utilities commissions.
Rodda had concerns about the financial risk associated with the new company's expected debt load, the lack of utility experience of the partnership proposing to buy UniSource and the inability to protect ratepayers if the company were to go into bankruptcy.
In November 2003 , UniSource entered into an agreement in which Saguaro Utility Group, a private equity group led by buyout specialists Kohlberg Kravis Roberts & Co. , would purchase all of UniSource's common stock outstanding for $25.25 a share. The deal, which included Saguaro acquiring UniSource's outstanding debt, was valued at the time at about $3 billion .
UniSource Chief Executive James Pignatelli said he is "shocked and disappointed" by the recommendation. "This transaction would strengthen our state's utility infrastructure and bolster our economic development efforts by highlighting Arizona's appeal to outside investors," he said in a prepared statement late Monday.
Pignatelli said the judge's opinion failed to recognize the significant benefits or more than 40 proposed conditions that "would protect the interests of customers of UniSource's utility subsidiaries."
A company spokesman could not immediately be reached for further comment on Tuesday.
UniSource is the parent company of Tucson Electric Power and UniSource Energy Services, which together provide electricity and natural gas to about 550,000 customers in Arizona.
Saguaro Utility Group's general partner is Sage Mountain LLC, an Arizona company managed and owned by Frederick Rentschler , former CEO of Armour-Dial, Beatrice Cos . and Northwest Airlines Corp. (NWAC).
The Arizona Corp. Commission is not bound by the judge's ruling and will issue its own decision. The utilities staff of ACC, however, issued a report in April opposing the buyout.
The staff argued that the buyout could impair the financial status of UniSource's regulated utilities. The heavy debt load of the parent company might become a burden specifically to its utility subsidiary, Tucson Electric Power, which typically delivers steady cash flow, the staff wrote.
UniSource will file its exceptions to the judge's report by the ACC's Nov. 17 deadline, the company said.
The ACC said in a statement to the media that the judge "will not entertain calls or inquiries about specific aspects of (her) recommendation."
The ACC is expected to meet in December to consider the acquisition.
UniSource's NYSE-listed shares were recently down $1.07 , or 4.4%, to $23.49 , on volume of 1.6 million, compared with average daily volume of 179,100.
-By Heather Draper , Dow Jones Newswires; 303-293-9294; heather.draper@dowjones.com
Dow Jones Newswires 11-09-04 1305ET
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