SJW Group Board of Directors Unanimously ReaffirmsCommitment
to Merger of Equals with Connecticut Water and its Potential to Create
Significant Long-Term Value for Shareholders and Benefits for Customers,
Employees and Communities
Preliminary S-4 Proxy and Registration Statement Filed; Important
Step Toward Closing Merger of Equals with Connecticut Water
SAN JOSE, Calif. -- (Business Wire)
SJW Group (NYSE:SJW) confirmed today that it has rejected an
unsolicited, non-binding indication of interest it received from
California Water Service Group (NYSE: CWT) (“Cal Water”) regarding a
potential proposal to acquire all issued and outstanding shares of SJW
Group for $68.25 per share in cash.
The SJW Group Board of Directors, following a careful and thorough
review in consultation with SJW Group’s management and legal and
financial advisors consistent with its fiduciary duties, determined that
Cal Water’s non-binding indication of interest neither constituted nor
was reasonably likely to lead to a superior proposal as defined in SJW
Group’s merger agreement with Connecticut Water Service, Inc. (NASDAQ:
CTWS) (“Connecticut Water”).
The SJW Group Board concluded that Cal Water’s all-cash transaction
described in the non-binding indication of interest would not permit SJW
Group’s shareholders the opportunity to share in the benefits expected
from being shareholders of the combined company with Connecticut Water.
The long-term benefits of the merger of equals transaction with
Connecticut Water include increased scale, enhanced financial strength
and geographic diversity; expected continued payment of dividends over
time; anticipated higher future growth profile and associated share
price appreciation; the tax-free nature of the merger of equals with
Connecticut Water; and significant earnings accretion – all of which the
SJW Group Board believes are unique to the proposed merger of equals
transaction.
In addition, Cal Water has not stated its plans for all employees should
it acquire SJW Group, whereas SJW Group has publicly stated that it will
continue to honor its commitments to all employees and believes that the
merger of equals with Connecticut Water will provide better
opportunities and outcomes for all employees of both companies.
The SJW Group Board determined that there is a significant risk Cal
Water’s proposed transaction would not close in a reasonable period of
time, if at all, due to the potentially protracted regulatory review
taking as long as 18 months, the substantial amount of financing that
the proposed all-cash transaction requires and the uncommitted nature of
Cal Water’s sources of financing.
The SJW Group Board continues to be committed to its existing merger
agreement with Connecticut Water, which remains on track to close during
the fourth quarter of 2018. This combination will create a leading water
utility company positioned to drive growth, serve customers and create
opportunities for all employees across a national footprint. The SJW
Group Board continues to believe the merger of equals provides the
shareholders of both SJW Group and Connecticut Water with the best
opportunity for value creation over the long term and yields benefits
for both companies’ customers, employees and communities.
J.P. Morgan Securities LLC is serving as financial advisor to SJW Group,
and Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel.
The text of SJW Group’s rejection letter to Cal Water follows:
April 25, 2018
California Water Service Group
Attn: Martin A. Kropelnicki and
Peter C. Nelson
1720 North First Street
San Jose, California
95112
Dear Messrs. Kropelnicki and Nelson,
We received your unsolicited non-binding indication of interest, dated
April 4, 2018, to acquire SJW Group for $68.25 per share in cash. After
carefully and thoroughly evaluating your non-binding indication of
interest in consultation with our management and legal and financial
advisors, the SJW Group Board of Directors has determined that it
neither constitutes nor is reasonably likely to lead to a superior
proposal as defined in SJW Group’s merger agreement (the “Merger
Agreement”) with Connecticut Water Service, Inc. (“Connecticut Water”).
Accordingly, the Board voted unanimously to reject your proposal.
In reaching its determination, as more fully described below, the Board
found that your offer of $68.25 per share significantly undervalues SJW
Group’s long-term prospects and is not in the best interest of our
shareholders. We are enthusiastic about the future prospects of SJW
Group, all the more so in light of our pending merger of equals (the
“Merger”) with Connecticut Water. We believe the Merger has the
potential to create significant long-term value for our shareholders –
value that our shareholders would not be permitted to share as part of
your proposal.
Upon consummation of the Merger, SJW Group is expected to be the third
largest investor-owned water and wastewater utility in the United
States. With a strong multi-state presence in Connecticut, Maine,
California and Texas, SJW Group will be well-positioned to continue to
deliver a robust and stable dividend, highly attractive earnings and
growth accretion to our shareholders, who will own approximately 60% of
the combined company.
Our Board concluded that your all-cash transaction described in the
non-binding indication of interest would not permit our shareholders the
opportunity to share in the benefits expected from being shareholders of
the combined company with Connecticut Water, including the opportunity
to realize the long-term benefits of increased scale, enhanced financial
strength and geographic diversity; expected continued payment of
dividends over time; anticipated higher future growth profile and
associated share price appreciation; and significant earnings accretion
– all of which our Board believes are unique to the Merger with
Connecticut Water. As a result of all of these factors, the Board
believes that the Merger will result in our shareholders having the
ability to realize greater long-term value than in your proposed
transaction.
Our board also believes that the Merger provides greater flexibility to
grow the business through increased investments, the ability to compete
more effectively across a national footprint, as well as increased scale
and cost savings. We are uniquely positioned to integrate the culture
and operations of SJW Group and Connecticut Water. We do not anticipate
any job losses as a result of this transaction and, following the
Merger, employees in the combined company will have additional
opportunities for career development and geographic mobility as part of
a larger, stronger and more diverse organization. This is a commitment
to our employees that we likely would not be able to honor if we were to
accept your proposal.
Additionally, our Board determined there is a significant risk that your
proposed transaction would not close in a reasonable period of time, if
at all, due to the risks presented by the potentially protracted
regulatory review taking as long as 18 months, the substantial amount of
financing that your proposed all-cash transaction requires and the
uncommitted nature of your sources of financing. Other factors include
that your proposal is a taxable transaction for our shareholders versus
the tax-free merger with Connecticut Water, the non-binding nature of
your indication of interest with significant contingencies, including,
among other things, performance of due diligence and negotiation of
binding documentation – a process that would further extend your
transaction’s closing time well beyond our fourth quarter 2018 target
for closing.
SJW Group continues to be committed to the existing Merger with
Connecticut Water and continues to believe the Merger provides the
shareholders of both companies with the best opportunity for value
creation over the long term, including:
- Highly attractive earnings and growth accretion. The
combination is expected to be mid- to high-single digit percentage
accretive to each company’s earnings per share. It will also offer
greater flexibility to grow the business through increased investments
and to compete more effectively in a fragmented industry. The new
company should have the opportunity to expand across a national
footprint with a leading forecasted growth rate.
- A strong balance sheet that enhances financial flexibility to
increase growth. The combined company is expected to benefit from
a robust balance sheet and enhanced financial flexibility, with total
assets of $2.4 billion. This will result in a stronger financial
foundation and increased capital markets access yielding a lower cost
of capital, better enabling the new organization to compete for
attractive growth opportunities on a national level.
- A solid credit profile that supports share repurchase. The
incremental debt capacity resulting from the merger of equals, and the
expectation that the combined company will maintain a strong "A"
credit profile, is expected to enable the combined company to pursue a
share repurchase program of up to $100 million.
- Enhanced equity value. Your non-binding indication of interest
significantly undervalues SJW Group’s long-term prospects and is not
in the best interest of SJW Group's shareholders. The Board believes
that the merger of equals with Connecticut Water will result in
shareholders having the ability to realize greater long-term value
than in your proposed transaction.
In addition to benefits to shareholders of both companies, the proposed
merger of equals with Connecticut Water will benefit employees,
customers and communities of both companies in the following ways:
- Honoring commitments to employees. SJW Group and Connecticut
Water do not anticipate any job losses as a result of the merger of
equals. Following the close of the transaction, employees will have
additional opportunities for career development and geographic
mobility as part of a larger, stronger and more diverse organization.
The companies do not anticipate any significant changes in employee
compensation or benefits packages as a result of the transaction. SJW
Group values its trusted union partnerships, and all union contracts
will continue to be honored.
- Delivering customer benefits. The new organization will
maintain the longstanding commitments of SJW Group and Connecticut
Water to outstanding customer service, which will be enhanced by the
sharing of best practices, operational expertise and more extensive
resources. There will be no change in customer rates as a result of
the merger of equals, and the operating subsidiaries of the combined
company will each continue to be subject to oversight by their
respective state regulatory commissions for rates and quality of
service.
- Serving local communities with a passionate, dedicated team of
locally-based water professionals. Each of the combined company’s
operating utilities and their customers will continue to be supported
locally by a team of passionate, dedicated employees and existing
leaders. They will continue to bring their extensive certifications,
operating experience and local knowledge to the communities where they
live, work and serve.
- Strengthening existing community ties. In addition to retaining
dedicated employee teams across its footprint, the new company will
maintain strong community ties and participation in community events
and organizations in Connecticut, Maine, California and Texas. The
combined company will continue to focus on supporting economic
development with investments in growth, safety and reliability.
- Advancing environmental stewardship. Environmental stewardship
is a core value for both organizations, given the local nature of the
water business. Both companies have been industry leaders in their
efforts to promote water conservation and protect the valuable lands
and water resources that have been entrusted to them. That focus will
continue as the combined company seeks to further reduce its
environmental footprint and look for opportunities to improve the
sustainability of its business practices.
- Providing increased scale, financial strength and geographic
diversity and deep operating expertise. In addition to an expanded
market presence, increased scale and more diverse geographic
footprint, the new organization will provide the opportunity for
investments in service and reliability that can enhance value for
shareholders as well as for customers and communities through our
strong multi-state presence with high-quality and well-run operations,
as well as constructive regulatory relationships in Connecticut,
Maine, California and Texas.
- Leveraging technology and capital investments. The combined
company can cost effectively implement updated customer service tools
across Connecticut and Maine utility operations by leveraging leading
Information Services and Technology systems that have been established
at SJW Group. The new company will honor commitments for approximately
$200 million of annual capital investments across its combined
operations, including moving forward with the construction of the new
surface water treatment facility in Saco, Maine.
We remain committed to executing the Merger Agreement with Connecticut
Water and are confident in its consummation during the fourth quarter of
2018.
Sincerely,
Eric W. Thornburg
Chief Executive Officer and President
SJW
Group
About SJW Group
SJW Group is a publicly traded holding company headquartered in San
Jose, California. SJW Group is the parent company of San Jose Water,
SJWTX, Inc. and SJW Land Company. Together, San Jose Water and SJWTX,
Inc. provide water service to more than one million people in San Jose,
California and nearby communities and in Canyon Lake, Texas and the
nearby communities. SJW Land Company owns and operates commercial real
estate investments.
Forward Looking Statements
This document contains forward-looking statements within the meaning of
the Private Litigation Reform Act of 1995, as amended. Some of these
forward-looking statements can be identified by the use of
forward-looking words such as “believes,” “expects,” “may,” “will,”
“should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,”
“projects,” “strategy,” or “anticipates,” or the negative of those words
or other comparable terminology.
The accuracy of such statements is subject to a number of risks,
uncertainties and assumptions including, but not limited to, the
following factors: (1) the risk that the conditions to the closing of
the transaction are not satisfied, including the risk that required
approvals from the shareholders of Connecticut Water or the stockholders
of SJW Group for the transaction are not obtained; (2) the risk that the
regulatory approvals required for the transaction are not obtained, or
that in order to obtain such regulatory approvals, conditions are
imposed that adversely affect the anticipated benefits from the proposed
transaction or cause the parties to abandon the proposed transaction;
(3) the risk that the anticipated tax treatment of the transaction is
not obtained; (4) the effect of water, utility, environmental and other
governmental policies and regulations; (5) litigation relating to the
transaction; (6) uncertainties as to the timing of the consummation of
the transaction and the ability of each party to consummate the
transaction; (7) risks that the proposed transaction disrupts the
current plans and operations of Connecticut Water or SJW Group; (8) the
ability of Connecticut Water and SJW Group to retain and hire key
personnel; (9) competitive responses to the proposed transaction; (10)
unexpected costs, charges or expenses resulting from the transaction;
(11) potential adverse reactions or changes to business relationships
resulting from the announcement or completion of the transaction; (12)
the combined companies’ ability to achieve the growth prospects and
synergies expected from the transaction, as well as delays, challenges
and expenses associated with integrating the combined companies’
existing businesses; and (13) legislative and economic developments.
These risks, as well as other risks associated with the proposed
transaction, are more fully discussed in the joint proxy
statement/prospectus that is included in the Registration Statement on
Form S-4 that has been filed with the Securities and Exchange Commission
(“SEC”) in connection with the proposed transaction.
In addition, actual results are subject to other risks and uncertainties
that relate more broadly to SJW Group’s overall business, including
those more fully described in SJW Group’s filings with the SEC,
including its annual report on Form 10-K for the fiscal year ended
December 31, 2017, and Connecticut Water’s overall business and
financial condition, including those more fully described in Connecticut
Water’s filings with the SEC, including its annual report on Form 10-K
for the fiscal year ended December 31, 2017. Forward looking statements
are not guarantees of performance, and speak only as of the date made,
and neither SJW Group or its management nor Connecticut Water or its
management undertakes any obligation to update or revise any
forward-looking statements.
Additional Information and Where to Find It
In connection with the proposed transaction between SJW Group and
Connecticut Water, on April 25, 2018, SJW Group filed with the SEC a
Registration Statement on Form S-4 that includes a joint proxy statement
of SJW Group and Connecticut Water that also constitutes a prospectus of
SJW Group. These materials are not yet final and will be amended. SJW
Group and Connecticut Water may also file other documents with the SEC
regarding the proposed transaction. This document is not a substitute
for the joint proxy statement/prospectus, Form S-4 or any other document
which SJW Group or Connecticut Water may file with the SEC. INVESTORS
AND SECURITY HOLDERS OF SJW GROUP AND CONNECTICUT WATER ARE URGED TO
READ THE REGISTRATION STATEMENT, THE JOINT PROXY STATEMENT/PROSPECTUS
AND ALL OTHER RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH
THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS,
CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN OR WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND RELATED MATTERS.
Investors and security holders may obtain free copies of the Form S-4
and the joint proxy statement/prospectus and other documents filed with
the SEC by SJW Group and Connecticut Water through the website
maintained by the SEC at www.sec.gov.
Copies of documents filed with the SEC by SJW Group are available free
of charge on SJW Group’s investor relations website at https://sjwgroup.com/investor_relations.
Copies of documents filed with the SEC by Connecticut Water are
available free of charge on Connecticut Water’s investor relations
website at https://ir.ctwater.com/.
No Offer or Solicitation
This communication is for informational purposes only and is not
intended to and does not constitute an offer to sell, or the
solicitation of an offer to subscribe for or buy, or a solicitation of
any vote or approval in any jurisdiction, nor shall there be any sale,
issuance or transfer of securities in any jurisdiction in which such
offer, sale or solicitation would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction. No
offer of securities shall be made except by means of a prospectus
meeting the requirements of Section 10 of the Securities Act of 1933, as
amended, and otherwise in accordance with applicable law.
Participants in the Solicitation
SJW Group, Connecticut Water and certain of their respective directors
and officers, and other members of management and employees, may be
deemed to be participants in the solicitation of proxies from the
holders of SJW Group and Connecticut Water securities in respect of the
proposed transaction. Information regarding SJW Group’s directors and
officers is available in SJW Group’s annual report on Form 10-K for the
fiscal year ended December 31, 2017 and its proxy statement for its 2018
annual meeting dated March 6, 2018, which are filed with the SEC.
Information regarding Connecticut Water’s directors and officers is
available in Connecticut Water’s annual report on Form 10-K for the
fiscal year ended December 31, 2017, and its proxy statement for its
2018 annual meeting dated April 6, 2018, which are filed with the SEC.
Investors may obtain additional information regarding the interest of
such participants by reading the Form S-4 and the joint proxy
statement/prospectus and other documents filed with the SEC by SJW Group
and Connecticut Water. These documents are available free of charge from
the sources indicated above.
View source version on businesswire.com: https://www.businesswire.com/news/home/20180426006108/en/
Contacts:
Media
Abernathy MacGregor
Ian Campbell, 213-630-6550, idc@abmac.com
Chuck
Dohrenwend, 212-371-5999, cod@abmac.com
Kendell
Moore, 212-371-5999, kem@abamac.com
SJW
Group
Jayme Ackemann
Director, Corporate Communications,
408-918-7247,
jayme.ackemann@sjwater.com
Investors
Andrew
Walters
Chief Administrative Officer, SJW Group
408-279-7818, andrew.walters@sjwater.com
Source: SJW Group
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