Cinergy adopts antitakeover plan

Reflecting a growing trend among US utilities, Cinergy Corp. adopted a shareholders rights plan Thursday to prevent a future unfriendly corporate takeover. Industry experts say more utilities will be adopting shareholders rights plans as they emerge from regulated monopoly status and enter competitive markets.


Ann de Rouffignac
OGJ Online

Reflecting a growing trend among US utilities, Cinergy Corp. adopted a shareholders rights plan Thursday to prevent a future unfriendly corporate takeover.

The so-called �poison pill� will give shareholders the right to purchase a certain number of shares of common stock at $100 each. Cinergy shares are currently trading at $26 a share with a 52-week range of $20-$31.50/share.

The plan, triggered by an acquisition of 10% of Cinergy's outstanding shares or the initiation of a tender offer, would make the cost of buying the company prohibitive without the board of director�s blessing.

The Cincinnati-based utility holding company said it did not adopt the plan in response to any current efforts to acquire control of the company.

Cinergy is not the only utility to adopt a "poison pill" lately. Allegheny Energy Inc., Hagerstown, Md., adopted a plan this spring as has NiSource Inc., Merrillville, In. About 40 utilities have "poison pills" in place.

Industry experts say more utilities will be adopting shareholders rights plans as they emerge from their regulated monopoly status and enter competitive markets. It�s not uncommon in most unregulated industries for companies to have these plans. According to the Investor Responsibility Research Center of Washington D.C., 56% of a sample of 1,500 large companies have "poison pills" plans in place for the year 2000.

Repeal PUHCA
Utilities are also responding to the probable repeal by Congress of the Public Utility Holding Act (PUHCA) that keeps utility holding companies from buying up neighboring utilities with contiguous boundaries, experts say. While many roadblocks have made passage of a sweeping federal electric industry deregulation bill unlikely in the short term, analysts think it is very likely that PUHCA will be repealed�possibly this year.

Once the1935 law intended to protect consumers against utility monopoly power abuse is repealed, analysts suggest consolidation among utilities is a certainty. Acquisition among buyers outside the industry who have been hesitant because of regulatory headaches is also probable.

�The big consolidators like Duke Energy Corp. or Southern Co. that have good balance sheets and want to be growth companies will be interested,� says Fred Schultz, analyst with Raymond James & Associates, Houston. �The foreign guys and big oil [major oil companies] are also waiting at the gate.�

Duke and Southern are large energy and utility companies with solid balance sheets that have publicly stated they want to be considered growth companies. Two foreign electricity companies ScottishPower PLC and PowerGen PLC have already bought US utilities. But the regulatory hurdles took some time to plow through.

Schultz notes that banking went through a period of consolidation after that industry deregulated. Utilities will be no different.

Under Cinergy�s plan, shareholders would receive the rights for the additional shares 10 days after either of the following events occurred without board approval:

� The public announcement of an acquisition of 10% or more of the company�s common stock.

� A tender offer or exchange offer which would give an acquiror 10% or more of the common stock.

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