Merger Terminated: Chess Game Contines
Central and South West Corp. notified bankrupt El Paso Electric Co. (EPE) on June 9 that it has terminated the companies' proposed merger. CSW had informed EPE on May 23 that it had breached the merger agreement by participating in discussions about and spending large sums on a possible stand-alone reorganization plan.
The CSW board of directors rejected EPE's request to extend the merger agreement for six months until December 8. CSW noted that several closing conditions had not been satisfied and could not be satisfied by December 8 (em such as obtaining required federal and state approvals. According to CSW, its decision to terminate voids the merger agreement and EPE's plan of reorganization, which had been confirmed by the bankruptcy court on December 8, 1993.
EPE vigorously denies that it breached the agreement. "CSW's actions are wrongful and have caused great damage to our company," said David H. Wiggs, Jr., EPE chairman and CEO. "After more than two years of very hard work under extremely difficult situations, it is bitterly disappointing to have our merger partner abandon us without just cause." Noting that EPE has a duty under bankruptcy laws to try to recover the money it believes CSW owes EPE and its creditors and shareholders, Wiggs said EPE had filed a $25-million lawsuit for merger termination fees in state district court in El Paso County, TX, to recover damages caused by CSW. (CSW has had the case removed to the federal bankruptcy court in El Paso, which has jurisdiction over EPE's bankruptcy case.)
CSW has also filed its own lawsuit, seeking a $25-million termination fee from EPE for breaching the companies' merger agreement. In addition, CSW seeks $3.6 million in rate case expenses, and a declaratory judgment that CSW properly terminated the agreement. CSW says it filed the lawsuit to protect its rights under the merger agreement, and asked that the declaratory judgment make clear that CSW owes EPE nothing under the merger agreement or otherwise.
Meanwhile, sources claim that CSW plans to renegotiate a merger, despite the notice of termination. A closed conference call with market analysts has convinced insiders that CSW is merely trying to bring EPE's price down. The agreed-upon price is apparently too high, given fears that EPE may lose major customers who are displeased with its high electric rates, including the Las Cruces municipal
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