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News Analysis

Fortnightly Magazine - January 15 1999

does not contemplate a merger," said Matanuska's Carmony. "This is particularly true given Chugach's frequently stated position that Matanuska is Chugach's competitor."

That stance left Bjornstad fuming, calling it "tantamount to saying that there is no way we can work with one another in connection with your proposal." But Matanuska said it believes that Chugach, by asking for more information, merely is trying to delay a vote on the proposal by the board of directors.

Instead of waiting, Matanuska informed Chugach that pursuant to Chugach's bylaws, it will pursue the matter through a petition process. That process will put the takeover up for a vote by Chugach's electric service customer members. The petition drive began in early November.

Standard & Poor's rates Chugach's bond series 1991A as a single-'A'. S&P says that in order to initiate the acquisition on its own, Matanuska must collect signatures of 10 percent of Chugach's members in order to call a membership meeting. If a majority of the members at the meeting vote in favor of the acquisition, then Chugach's board will have to seriously consider the offer. Matanuska said it expects that the vote would be presented to Chugach's members at its next annual meeting, in April.

Again, Chugach said it feels pushed. "It really makes you curious about the merits of the proposal," said Chugach president Pat Jasper. "Is there some reason to be afraid of a reasoned analysis?" he queried.

In a letter to Chugach members, Bjornstad questioned Matanuska's proposed $500 payment to qualifying active members of both associations if the deal goes through. He explained that the total payment (a $42.5 million "acquisition premium") would force debt service costs up so high and so disrupt cash flow that the surviving association would not begin to see savings for at least 20 years.

"The additional cost ¼ cannot be financed out of savings identified by MEA from combining the two companies."

Not so, says Matanuska's Carmony. "Our analysis shows we can afford a payment of $500 to each active member of the newly expanded Matanuska, once the purchase is concluded," he said. Matanuska claims that Chugach is running a misleading advertisement, in which it portrays their members as fish hungrily eyeing a $500 bill. The result of all the bickering is that Chugach's board officially rejected the takeover in mid-November, claiming that the proposal "would cause either reduced margins or higher rates." But Matanuska is undaunted, and continues with its takeover petition.

Equal Representation?

Jasper also noted that he feared for Chugach's members if the cooperative is broken up, accusing Matanuska of not planning to give Chugach and its members any seats on the board of directors of the new organization, even though Matanuska proposes to add five seats to the present seven. He pointed out that Chugach's 55,000 retail customers would be combined with Matanuska's 35,000-member customer base, and while the new Matanuska would then have three times as many customers, most would be made up of former Chugach members.

"Chugach has been providing safe, reliable, affordable power for 50 years," Jasper observed.