Merger of Equals Is Superior Transaction with Clear Path to Close
During Fourth Quarter 2018; Cal Water’s Proposal Is Inferior, Uncertain
and Non-Binding with Potentially Protracted Timeline to Close
Merger of Equals Will Create Significant Value for SJW Group and
Connecticut Water Shareholders and Benefits for Customers, All Employees
and Communities Both Companies Serve
In Contrast, Cal Water is Asking SJW Group Stockholders to Deny a
Concrete Value Creation Opportunity for an Uncertain Proposal with High
Hurdles to Overcome
Combined SJW Group/Connecticut Water Will Be a Leading, Pure-Play
Water Company with the Scale, Management, Financial Strength and
Geographic Diversity to Excel Operationally and Financially
SJW Group Also Questions Cal Water’s Commitment to Jobs and Ability
to Manage Large, Complex Urban Water Systems Effectively and Safely
SAN JOSE, Calif. -- (Business Wire)
SJW Group (NYSE:SJW) today commented on California Water Service Group’s
(NYSE: CWT) (“Cal Water”) launch of a proxy contest challenging SJW
Group’s merger of equals with Connecticut Water Service, Inc. (NASDAQ:
CTWS) (“Connecticut Water”).
Robert A. Van Valer, the lead independent director of SJW Group’s Board
of Directors and trustee of the Roscoe Moss Jr Revocable Trust, which is
the largest stockholder of the company, said:
“We are deeply disappointed that Cal Water has chosen to undertake this
action that will only be expensive and distracting. As previously
announced on April 26, 2018, the SJW Group Board of Directors carefully
and thoroughly reviewed Cal Water’s non-binding indication of interest
in consultation with management and legal and financial advisors and
determined that it neither constituted nor was reasonably likely to lead
to a superior proposal as defined in SJW Group’s merger agreement with
Connecticut Water. The Board unanimously reaffirmed its intention to
recommend that SJW Group stockholders vote FOR the merger of equals with
Connecticut Water.
“The SJW Group Board continues to believe that the existing merger of
equals with Connecticut Water will create significantly greater value at
transaction close and over the longer term for SJW Group and Connecticut
Water shareholders and significant benefits for the customers and
communities both companies serve. We also see additional benefits for
employees and do not foresee any job losses as it relates to the merger
of equals with Connecticut Water. The merger of equals is a signed,
definitive merger agreement with a clear path to close during the fourth
quarter of 2018. It has the binding support of approximately 16% of SJW
Group’s shares that are owned by the Moss family, and has received early
termination notice by the Federal Trade Commission under the
Hart-Scott-Rodino waiting period.
“Our transaction with Connecticut Water will create a leading, pure-play
water company with the scale, management, financial strength and
geographic diversity to excel operationally and financially. Our Board
and executive management team have the experience and expertise to
manage and grow a complex water utility company with operations in
multiple jurisdictions throughout the country.”
In addition, SJW Group said:
Cal Water’s proposal is an inferior, uncertain, and non-binding
indication of interest that has a lengthy and uncertain timeline to
close. In fact, Cal Water is asking SJW Group’s stockholders to vote
against our concrete value creation opportunity with Connecticut Water
for a vague and uncertain indication of interest that we believe has
high hurdles to overcome.
The merger of equals between SJW Group and Connecticut Water is a
binding, definitive agreement that is on track to close during the
fourth quarter of 2018. SJW Group urges its stockholders to disregard
Cal Water’s WHITE proxy card and instead vote the GREEN
card FOR all proposals related to the merger of equals with
Connecticut Water.
Additionally, Cal Water’s non-binding indication of interest, with its
reliance on value creation through cost savings, will likely result in
significant job losses. Cal Water’s proposal also will increase its
borrowings, which will divert capital to service its extremely high debt
level, and could lead to under-investment in its water infrastructure
thereby jeopardizing the safety and quality of its water supply and
service to its customers and creating future dividend uncertainty for
Cal Water’s shareholders.
We also note that nowhere does Cal Water describe what it means by
“timely” regulatory approval, nor does it give any factual basis for its
contention that it can obtain approval promptly or at all. The promises
made in Cal Water’s acquisition of Dominguez Services Corporation are
similar to the promises that it is making now. That acquisition of
Dominguez Services Corporation, which was less than 20% of the current
size of SJW Group, took a full 15 months to receive regulatory approval
after the documents were filed. In our opinion, for Cal Water, “timely”
likely means “a long time”, with the regulatory review of a transaction
involving SJW Group taking as long as 18 months from the day Cal Water
would submit its application to the California Public Utilities
Commission – if Cal Water is able to close a transaction at all.
SJW Group’s merger of equals with Connecticut Water is the superior
transaction for all stakeholders and will offer immediate and long-term
benefits including:
- Immediate and long term value creation Cal Water’s non-binding
indication of interest significantly undervalues SJW Group’s long-term
prospects and is not in the best interest of SJW Group's stockholders.
The merger of equals with Connecticut Water will result in a company
with expanded market presence, increased scale and a more diverse
geographic footprint. The combined company is expected to benefit
immediately 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 yield immediate value creation from
increased capital markets access yielding a lower cost of capital, and
better enabling the new organization to compete for attractive growth
opportunities on a national level over the long term.
- Highly attractive earnings and growth accretion. SJW Group’s
combination with Connecticut Water 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.
- Attractive total shareholder return proposition. Over the past
five years SJW Group has delivered a 145 percent total return to its
company’s stockholders and Connecticut Water has delivered a 154
percent total return to its company's shareholders – benefits SJW
Group stockholders would not be permitted to realize under Cal Water’s
proposal. Under Cal Water’s proposal, SJW Group stockholders will no
longer be able to participate in the growth upside of the company or
its dividend program.
- A solid credit profile that supports share repurchase. The
merger of equals is expected to result in incremental debt capacity.
The Standard & Poor’s has already reaffirmed that SJW Group will
retain its “A” credit profile following the merger with Connecticut
Water, after consideration of the combined company’s intent to pursue
a share repurchase program of up to $100 million.
- A commitment to all employees. SJW
Group and Connecticut Water do not anticipate any job losses as a
result of the merger of equals, whereas Cal Water has not stated its
plans for all employees should it
acquire SJW Group. Cal Water is focused on value creation through cost
savings, which likely will result from job losses. In fact, Cal
Water’s recent “commitment to fair severance” makes it crystal clear
to us that their real intention is to eliminate jobs. SJW Group
estimates that as many as 30% of all employees at SJW Group might be
targeted for elimination by Cal Water. Following the close of the
merger of equals transaction, both SJW Group and Connecticut Water
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.
- A clear and certain path to close. SJW Group and Connecticut
Water remain on track to close the merger of equals during the fourth
quarter of 2018. In contrast, Cal Water’s proposed transaction would
not close in a reasonable period of time, if at all, due to the
potentially lengthy and uncertain review taking as long as 18 months
from the day Cal Water would submit its application with the
California Public Utilities Commission, the substantial amount of
financing that the proposed all-cash transaction requires, which
increases the regulatory risk, and the uncommitted nature of Cal
Water’s financing sources.
- Cost-savings and reliability for customers. 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. SJW Group also questions whether Cal Water’s experience
operating many small, disparate water systems gives Cal Water the
technical and managerial experience necessary to successfully operate
a major urban water system like the one in San Jose, California, and
achieve what Cal Water has promised. This uncertainty is highlighted
by Cal Water’s inability in recent years to complete its planned
infrastructure reinvestment programs as approved by the California
Public Utilities Commission.
- An experienced and capable management team able to successfully
integrate both businesses. 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. In contrast, for Cal Water’s most recent
significant transaction - Dominguez Services Corporation - it took
several years after the formal end of the proceeding to resolve
concerns about that transaction's synergies and the effects of the
acquisition on the utilities’ customers. Ultimately, the California
Public Utilities Commission cited Cal Water’s faulty and inconsistent
record of synergy estimates and guarantees for the tie-up.
- Strengthened 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.
- Advancement of environmental stewardship. Environmental
stewardship is a core value for SJW Group and Connecticut Water, 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.
SJW Group will mail to stockholders its proxy statement and GREEN
proxy card as well as additional information about its merger of equals
with Connecticut Water. SJW Group stockholders are advised to take no
action in response to any materials they may receive from Cal Water and
to DISCARD ALL WHITE proxy cards or other materials from California
Water Service Group.
SJW Group stockholders who have questions or would like additional
information should contact SJW Group’s proxy solicitor, Georgeson,
toll-free at (866) 357-4029 or by e-mail at SJW@Georgeson.com.
Also, please be sure to visit the SJW Group and Connecticut Water
transaction website at www.sjw-ctws.com
to review the merits of our merger of equals.
J.P. Morgan Securities LLC is serving as financial advisor to SJW Group,
and Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel.
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 shareholders
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/20180502006798/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
or
SJW
Group
Jayme Ackemann, 408-918-7247
Director, Corporate
Communications
jayme.ackemann@sjwater.com
or
Investors:
SJW
Group
Andrew Walters, 408-279-7818
Chief Administrative Officer
andrew.walters@sjwater.com
or
Georgeson
LLC
William Fiske / Edward Greene
212-440-9800 / 866-357-4029
SJW@Georgeson.com
Source: SJW Group
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