Connecticut regulators rejected Iberdrola SA’s $3 billion acquisition of UIL Holdings Corp. in a preliminary decision, saying it wasn’t clear how the new Spanish owner planned to run the company.
“Iberdrola’s record of mergers and divestitures in the region is mixed,” the Public Utilities Regulatory Authority wrote in the decision, which went on to question Iberdrola’s commitment to the local business distributing gas and electricity. “The change of control request is in effect asking for the authority’s and Connecticut ratepayers’ leap of faith into an unknown situation.”
The companies can respond to the proposed decision and regulators will issue a final decision on the merger on July 17, according to a state filing. Massachusetts regulators also must approve the deal.
Iberdrola, based in Bilbao, Spain, offered to pay $52.75 a share for UIL in February, a 25 percent premium to the company’s share price at the time. UIL, which has about 727,000 customers in Connecticut and Massachusetts, fell 3.6 percent to $45.82 at the close in New York.
Spokesmen for Iberdrola and UIL didn’t immediately return calls requesting comment.
“It’s definitely a surprise, but Connecticut has been a tough jurisdiction,” said Kit Konolige, an analyst with Bloomberg Intelligence. “My interpretation is that they are looking for Iberdrola to put more on the table.”
The regulator said Iberdrola failed to prove in its application that it had the structure or management to provide safe, adequate and reliable service to the state. The agency left open the possibility that additional details on those points “could convince the PURA to approve a change of control transaction,” the agency wrote.
A witness for Connecticut’s Office of Consumer Counsel provided testimony on the transaction, pointing out that other big utility deals, including Exelon Corp.’s takeover of Pepco Holdings Inc., have included “tangible” benefits for customers, such as credits on their bills. The witness suggested Iberdrola credit each customer $128 upon closing of the deal, as well as invest in a $202 million fund over three years to benefit customers.
Takeovers of U.S. utility companies that service multiple jurisdictions can take years to secure approval from regional and federal authorities.
Iberdrola targeted UIL to gain access to the U.S.’s shale gas business. The acquisition would create a U.S. utility with about 3.1 million customers in New York, Connecticut, Maine and Massachusetts, according to a statement announcing the deal in February.