[BETA] Fortnightly

The Brooklyn Union Gas Co. and The Long Island Lighting Co. have agreed with the Long Island Power Authority for LIPA to acquire all of the Long Island Lighting Co.'s electric transmission and distribution system, plus substantially all of its regulatory assets and its share of the Nine Mile Point 2 nuclear plant.

The transaction would take place through a stock purchase from the holding company, which Brooklyn Union and Long Island Lighting Co. will form. (The two companies last December had announced an agreement to merge into a new holding company with a combined market value of about $4 billion.)

According to "CitiWatch," a corporate bond research report issued by Citicorp Securities, the deal could depend on other political interests, particularly at the state level.

"Many regulatory hurdles remain to be jumped before this deal can close and (em unlike most business arrangements (em the ultimate transaction will be crafted by politicians as well, not just executives and bankers," the report says.

Long Island Power Authority plans to acquire the stock for about $2.5 billion in cash. The stock purchase is expected to result in proceeds of about $1.7 billion to $1.9 billion, after payment of taxes and other short-term liabilities. Long Island Lighting Co. will assume or refinance about $3.6 billion of the $4.5 billion outstanding LILCO debt. The combined company or its subsidiaries will deal with the balance.

The transaction, agreed to on March 19, is subject to negotiation and approval.

CitiWatch notes that the real deal will occur in back rooms "when the Republicans supportive of this transaction figure out what sort of compromises have to be made to make the Democrats (em particularly New York State Assembly Speaker Sheldon Silver (em sign on." CitiWatch also points out that Silver has veto power over the entire deal.

Another deal breaker could be the tax treatment of the capital gains. For the deal to work, the Internal Revenue Service must not levy capital gains tax on the transfer of the regulatory asset from the Long Island Lighting Company to a governmental body. CitiWatch warns that the potential multi-billion-dollar tax liability would be an instant deal killer.

Articles found on this page are available to Internet subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.