Posts Tagged ‘Special Situations’

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Puget Energy Merger Delayed

December 12th, 2008 by Jae Jun

It has been announced that the PSD merger will not close by the end of the year. The merger agreement requires closing the deal 15 business days after all requirements have been met, including approval by the Utilities and Transportation Commission. Today being the 12th and not expecting an announcement this week, we run out of days in December for it to work out.

A New Question Regarding The Merger

On hearing the news, a slight concern related to financing came to my mind. What happens to the capital if the financing condition is based on a closure date of 2008. Would the money still be available in 2009?

After reviewing the Proxy statement, it does not reveal anything related to deadlines or timeframes for financing. I’ll consider this as the capital still being available in 2009.

Scanning through the proxy also served as a reminder to check on the banks (Barclays and Dresdner) providing the debt financing. (No comments on this yet.)

Going deeper into search led me to think about the ownership and how the Macquarie people were involved.

Ownership Interest

The latest 13D statement from Oct 2, 2008 shows the ownership of the Macquarie shareholders. Additionally, the notes bring up some interesting information, but first, the ownership is as follows:

  • Macquarie Infrastructure Partners A, L.P. – 1.3%
  • Macquarie Infrastructure Partners International, L.P – 1.4%
  • Macquarie Infrastructure Partners Canada, L.P. – 0.3%
  • Macquarie FSS Infrastructure Trust – 0.4%
  • Macquarie Asset Finance Limited – 1.5%

In total, Macquarie holds 4.9%. This is not a huge amount but it does show that the buyer is serious.

Regarding the notes, there is a section which states;

“On October 2, 2008, Padua MG Holdings (PMGH) transferred all of the shares of Common Stock that it held to Macquarie Asset Finance Limited (MAFL). As a result of the transfer, PMGH no longer holds any shares of Common Stock……

Macquarie Capital Group Limited (MCGL) is the operating company for Macquarie Group Limited (MGL) non-banking operations. MCGL often invests alongside Macquarie Group managed funds in investments similar to the acquisition of Puget in an underwriting capacity. This is the case for the Merger, and MCGL expects to sell down either the shares of PMGH or PMGH’s minority position to other Macquarie Group-managed funds prior to financial close of the Merger or shortly thereafter.”

It seems like the price drop starting Oct 2 may have been part of Macquarie’s process of acquiring shares from other holders. It’s also exactly at this time the market started going nuts. So all of this, being part of the process, was probably overshadowed by mad Mr Market. Talk about timing.

Odds of the Merger

Time for a numbers update. Here are the figures I am now applying considering all the information I’ve laid out here and in previous posts.

Upside Potential: 23%: $24.41 -> $30

Downside Potential: 20%: $24.41 -> $20

Probability of Success: 80% (probability decreased due to my financing worries)

Probability of Failure: 20%

Time Frame: 1 week,  >1week but <1 month,  1 month

It’s also important to note that the upside and downside percentages are inversely correlated. If the price goes up, the upside decreases and downside increases and vice versa.

Other Points

From my previous posts, it’s very clear that the Public Counsel is trying to delay the merger. As I don’t understand the way business works at the UTC I have no way of answering why they can’t just ignore the Public Counsel and get on with the job. Maybe it’s part of the Public Counsel’s job description to oppose everything. Who knows..? So from today on, I’ll probably deduct the influence the Public Counsel may have in preventing the merger.

A reader asked me what other situations I have been looking into. My arbitrage strategy is to focus on one at a time so that I have a understanding of the whole picture rather than knowing bits and pieces and filling in the blanks with my own assumptions. There is so much uncertainty to a deal that missing vital clues could be disastrous. This is a risk of why arbitrage isn’t for those that don’t have the time to try and find everything.

Disclosure

Long PSD at time of writing.

[tags]arbitrage, merger, psd, puget sound, Special Situations[/tags]

Tags: arbitrage, merger, psd, puget sound, Special Situations
Posted in Featured, Special_Situation | 2 Comments »

Puget Energy: Price Drop On No News

November 29th, 2008 by Jae Jun

Lately the price of PSD has dropped as much as 10%. If this was a regular market, that could mean something, but we are not in a regular market – it’s still driven by fear and emotions.

The status of the merger has not changed one bit from my last post. There have been no new publicly announced press releases, but some interesting filings with the Washington Utility and Transportation Commission (WUTC) may be of interest.

Recall that I wrote about how the final reply briefs had to be submitted by October 23,2008. Well, there were plenty of submissions and responses. I’ll provide a brief look at what’s been going on.

To read all posts related to PSD, click here.

Filings On October 23, 2008

Conclusion of the reply briefs submitted by PSD

  • The members of Puget Holdings have demonstrated a long-term commitment to
    PSE and its customers.
  • Puget Holdings’ commitment to PSE goes beyond financial support.
  • Puget Holdings has worked closely with other stakeholders in this process and has earned the support of almost all parties to this proceeding.
  • Only Public Counsel fails to recognize the benefits of the Proposed Transaction.
  • The supporting parties have divergent interests and goals, yet they have acknowledged that the Proposed
    Transaction is in the public interest, and they have supported the Multiparty Settlement Stipulation.

Conclusion of the reply briefs submitted on behalf of Commission Staff from Donald T. Trotter

  • Proposed transaction meets the Commission’s “no harm” standard
  • Commission should grant the Application according to the terms and conditions int he Settlement Stipulation
  • Commission should reject Public Counsel’s opposition to the transaction

Filings On October 24, 2008

Conclusion of the reply briefs submitted by the Public Counsel

  • Requests the Commission find the proposed transaction as described in the Settlement Stipulation is not in the public interest

Filings On October 28, 2008

Conclusion of Commission Staff Motion to Strike Portions of Public Counsel Reply Brief from Donald T. Trotter

  • The Commission Staff requests that several paragraphs from the Public Counsel’s reply brief be striked out
  • Public Counsel reply brief seeks to include additional information which should not be considered as it does not comply with the proceedings

Conclusion of Puget Holdings Motion to Strike Portions of Public Counsel Reply Brief

  • Much the same as the Commission Staff’s motion to strike. The Public Counsel only seeks to delay the proceedings

Filings On October 31, 2008

Conclusion of response from Public Counsel Opposition to Motions to Strike Portions

  • Citing late-breaking news in a brief is not ordinary procedure, for good reason. This is not an ordinary situation, however, and the rules provide the Commission the discretion and flexibility to address it.
  • Joint Applicants and Staff unreasonably ask the Commission to disregard developments that have occurred since the filing of the initial briefs, as they initially sought to do with events between the hearing and the initial briefs. Their position has been that the record should remain as it was at the end of August. Public Counsel does not agree that the Commission should operate in such a vacuum.

Filings On November 5, 2008

Conclusion of Granting Motions to Strike by the Commission

  • The Commission already has reopened the record once at Public Counsel’s request to allow him to introduce materials similar for the most part to what he seeks to introduce here.
  • The material he introduced then was of marginal relevance and cumulative to evidence already in the record which illustrates that financial markets in the U.S. and worldwide currently are volatile.
  • There is nothing compelling about what Public Counsel seeks to introduce.
  • Contrary to Public Counsel’s suggestion, the Commission is not “operating in a vacuum” in this regard, but is fully aware of current events.
  • The Commission grants Staff’s and Joints Applicants’ respective motions to strike.

Filings On November 11, 2008

Denying Public Counsel’s Motion Challenging Confidentiality

This filing is in response to the Public Counsel’s challenge to the Commission that it did not abide by the confidentiality codes.

  • Considering this, and the fact that Public Counsel challenges the confidential designation of all of the information highlighted in Mr. Hill’s testimony, we find Public Counsel’s motion deficient on its face.
  • THE COMMISSION DENIES the “(Corrected) Public Counsel Motion Challenging the Confidentiality of Certain Materials Provided in Discovery by Joint Applicants.”

Conclusion

It’s evident that the Public Counsel’s purpose is to delay the merger. They have been unable to provide any real argument and all their challenges have been met with denials.

All parties affected by the merger have agreed that the merger is in the best interest of the public except the Public Counsel. Even the commission staff has expressed that the merger meets all standards and it should be approved.

The only conclusion I can come up with is that hedge funds are selling their positions as they try to deleverage. Don’t be fooled that the market is efficient in the short term.

My estimated holding period of 1 week was way off. I’ve held PSD shares for 1 month now, but considering a nice gain is still available and the stability it is providing for my portfolio, I don’t mind holding for 1 more month.

Disclosure

I hold shares of PSD at the time of this writing.

The current price looks pretty good to me but I won’t be adding as I’ve already doubled down and am pretty overweight with this one.

[tags]PSD, merger, UTC, arbitrage, Special Situations[/tags]

Tags: arbitrage, merger, psd, Special Situations, utc
Posted in Featured, Special_Situation | 1 Comment »