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December 5, 2018

Connecticut regulators balk at $1.1B buyout of Maine Water Co. parent

Maine Water Co.'s parent

Connecticut Water is the parent of the Connecticut Water Co., the Maine Water Co., the Avon Water Co. and the Heritage Village Water Co. The subsidiaries provide water service to more than 450,000 people in Connecticut and Maine, and wastewater serve to 10,000-plus people in Connecticut.

A deal to buy Maine Water Co.'s parent company hit a snag early this week.

State regulators in Connecticut on Monday preliminarily denied a California company's $1.1 billion proposed acquisition of Connecticut Water Service Inc. and its three subsidiaries, adding a new wrinkle to a deal that's been filled with starts, stops and plenty of drama.

Connecticut Water is the parent company of Maine Water Co., which serves about 80,000 residents in 21 Maine communities and has 70 employees and 11 water treatment facilities in the state.

Its proposed acquisition by SJW Group also is being reviewed by the Maine Public Utilities Commission, which held a hearing on the proposed merger on Nov. 29.

In a draft decision Monday, the Connecticut Public Utilities Regulatory Authority (PURA) said it shot down the Aug. 20 buyout application because the deal would leave Connecticut Water in "worse condition both financially and managerially."

In addition, PURA commissioners are worried that the deal lacks binding commitments to maintain a Connecticut headquarters and protect local jobs, threatens a mandate that public utilities maintain local control, and doesn't offer enough of a public benefit.

PURA said its decision is not yet final and could change. It will consider arguments from SJW Group and other parties before issuing a final decision Dec. 12.

The draft decision comes after Connecticut Water shareholders approved the all-cash buyout last month, with the hopes of completing the $70-per-share acquisition by the first quarter of 2019.

State regulators received 78 letters and email correspondence regarding the proposed acquisition, which would create the third-largest, investor-owned water and wastewater utility in the U.S.

Most of the correspondence expressed opposition to the proposed deal, and concerns over the conservation of watershed lands and whether they would be adequately preserved. Others questioned the impact of having a California water utility overseeing a major Connecticut entity, also New England's largest publicly traded water utility company.

Several individuals, including the Naugatuck Valley Council of Government and Connecticut Land Conservation Council, argued any sales agreements involving Connecticut Water assets "does not include an ownership right to the water itself," the decision says.

"[T]he reality is Connecticut Water will be run as an outpost from California and the governance structure, board control, and management will all be controlled by San Jose Water," Operation Fuel argued.

The Rivers Alliance of Connecticut applauded Connecticut Water's management history, but questioned how that would be affected when SJW takes over.

"Pledges relating to corporate behavior post-acquisition are normally broken sooner or later, and have no meaning unless legally binding or perhaps involving a financial penalty if broken," they said. "Moreover, there is no guarantee that San Jose Water will continue to be the owner of Connecticut Water."

In a statement Monday evening, SJW said it's reviewing PURA's drafted decision with Connecticut Water. The California company said it will continue working with PURA to ensure the merger is in the public interest.

"We have a shared commitment with Connecticut Water to realize the significant benefits we believe our merger will deliver to all stakeholders, including employees, customers and local service area communities throughout Connecticut," the utility said.

In a statement, Connecticut Water indicated it will provide comments and materials to PURA in response to the decision, but it's unclear exactly how the two companies might remedy PURA's concerns.

Both companies have maintained that the combined company would continue providing safe and reliable water service. The companies also argue SJW is financially strong, with assets of $1.5 billion, and that no employee will lose their jobs or relocate to California as a result of the deal

Carol P. Wallace, chairman of the Connecticut Water board of directors, has said the Clinton-based utility will continue to be led locally with a New England regional headquarters.

The companies originally announced a $750 million merger in March, but SJW raised its offer in August to stave off competing bids from Eversource Energy and another California suitor.

Editor's note: Joe Cooper is the web editor of Hartford Business Journal, a sister publication of Mainebiz. Both publications are owned by New England Business Media.

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