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To merge or not?

carlson

Don’t look now but a huge fly just landed in the middle of the ointment that has dogged Avista Utilities proposed sale to the Canadian owned and operated HydroOne headquartered in Toronto, Ontario.

The fly with the big stick comes in the form of the newly designated Premier, Doug Ford, the leader of Ontario’s Progressive Conservative Party, which won the June 7th election to run Canada’s largest, most populous province. A provential premier is the equivalent of an American state governor and Ontario is to Canada what California is to the U.S.A.

The 53-year old Canadian businessman takes power on June 29th and the future of the proposed merger lies in his hands. He is considered by many to be their version of the mercurial Donald Trump. Part of his pitch in the recent elections was to say, as soon as he takes office he intends to fire the CEO of HydroOne, Mayo Schmidt, and he will also replace the entire board.

He is obviously unhappy with the direction of the corporation, is outraged by the high salaries the top executives receive and believes the “hydro rate” charged consumers is too high. The fact is though the utility has nothing to do with the setting of the charge to the consumer.
Over 60% of the power used annually in Ontario comes from nuclear generation, but that generation is owned by others.

The HydroOne CEO made $6.2 million last year, leading Ford to dub him “the six million dollar man” on the campaign trail and pledge to fire him.

Last week about fifty Idahoans showed up at an Idaho Public Utilities Commission hearing in Sandpoint on the proposed merger. A slight majority appeared opposed to the merger. Unlike Ford, their issue was not Avista’s CEO Scott Morris’ salary and bonus, which on average is considerably less than Schmidt’s, their issue is foreign ownership of the the Spokane-based utility.

Insiders in a position to know say there were preliminary discussions with three other firms but only one proceeded into the due diligence stage. Thus, only one proposal went to Avista’s board.

Opponents, though, just don’t think it is right. Letters and comments are reportedly running 20 to one against the merger, which is hard for the IPUC to ignore as well as political office holders and whomever is elected governor in November.

It also reflects Avista’s failure to have developed and implemented a strategic plan to sell the merger in advance to key audiences. Some, for example, may question Morris’ salary and bonus. What they and Premier Ford should know is for years Morris has donated all his bonus to Gonzaga University, the board of trustees of which he chairs. A couple years back he outright gifted $3 million to Gonzaga.

Someone will have to tell Ford that factoid. Just like Trump, Ford never reads reports or memos. He goes with his gut.

Ford also will find out he cannot fire the CEO, only the board can do that. He can call for a new board election but cannot stack the ballot with just his backers. Others who meet the criteria may ran so Ford doesn’t even control the board. Where he stands on the merger is not known. What is known is that the contracts provide for penalties of up to $103 million for the party that abrogates the agreement.

That should give cause for pause even for Doug Ford.

Everything is supposed to be signed, sealed and delivered by mid-September. Smart bettors and investors (HydroOne is listed on the Toronto Stock Exchange and reportedly is seeking a listing on the New York Stock Exchange) might just sit this one out for awhile because it may be headed for the courts on both Canada and the U.S. side. You see Doug Ford really is Donald Trump Lite.
 

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