Entergy, FPL break off merger agreement

By the OGJ Online Staff

HOUSTON, Apr. 2�Entergy Corp. and FPL Group Inc. Monday terminated their merger agreement in a dispute over the management team, business strategy, and emerging valuation issues.

The companies blamed each other for the deal's dissolution.

The agreement, announced in July 2000, had been in trouble for several weeks. The two companies reported they were renegotiating its terms Mar. 19. The results cooled Entergy�s enthusiasm for the union.

The combined firm would have been the largest US electric utility serving about 6.3 million customers and could have maintained the largest generating capacity.

Entergy called proposed FPL management changes unacceptable. According to Entergy, FPL Chairman James Broadhead proposed changes that were contrary to the terms of the pact.

Broadhead was to become chairman and the combined company would have been headquartered in Juno Beach with major business units based away from corporate headquarters as specified in the proxy. Since then, FPL expressed "unwillingness" to implement the proposed organizational structure, Entergy said.

Entergy also said fundamental differences existed between the two companies in their approach to risk management which were brought out by the recent changes in the regional power markets and increased price volatility.

�FPL�s approach is focused on owning and managing assets to create value through operations and efficiency improvements,� according to Entergy's statement. �Entergy�s approach emphasizes developing skills, relationships, and proprietary systems to create value around assets through superior market knowledge and effective risk management.�

Looming as a larger problem was the valuation of FPL�s stock which slipped in recent weeks, compared with Entergy, said Gerald Keenan, partner with PriceWaterhouseCoopers in Chicago.

�Last week there was actually a negative premium of 2% to 3% for Entergy associated with the fixed exchange ratio,� he said.

Entergy said that the merger would no longer be one of equals and was tantamount to a �takeover without a premium.� At the time that shareholders approved the merger in December 2000, FPL Group was to own 57% of the common equity of the combined company, and Entergy shareholders would have owned a 43% stake.

FPL for its part questioned Entergy�s financial forecasts.

�Entergy repeatedly refused to provide financial documents and other information requested by FPL,� according to a FPL statement.

Keenan added that other realties of the merger surfaced as the months dragged on while putting the deal together. The merger and acquisition group which put the deal together doesn't always consult closely with the regulatory group.

Entergy said that the decentralized management structure was critical to getting regulatory approvals and FPL was unwilling to �honor these provisions.�

Keenan said difficulties arise when the regulatory process required to obtain approval becomes extended.

In FPL�s case, there are no extensive regulatory approvals, but Entergy will have to get regulatory approval from �everybody and his brother,� he said.

In a joint statement, the companies said they agreed not to seek a break-up fee, but added that a fee will be payable if one party agrees to a substantially comparable transaction with another party within 9 months of the termination.

FPL Group, which is based in Juno Beach, Fla., is the parent company of Florida Power & Light. Entergy, based in New Orleans, has regulated power businesses in Arkansas, Louisiana, Mississippi, and Texas.