Wholesale customer turns tables, threatens leveraged buyout against its own supplier.
Matanuska Electric Association, the largest customer of Alaska's Chugach Electric Association, has offered to acquire Chugach, the state's largest power company. But in launching the hostile takeover, Matanuska said it would pay not a cent to Chugach. Adding a new twist to the term "cooperative finance," the Matanuska co-op proposed a leveraged buy-out - a takeover strategy popular during the 1980s. In this case, Matanuska would buy Chugach by refinancing most of its $347 million debt and then realize further savings through economies of scale achieved by the merged company.
Should Matanuska succeed in its efforts, it plans to create a separate generation and transmission company, while adding Chugach's retail customers to its own distribution system. The result would be that Matanuska's new, wholly owned subsidiary, Chugach Electric Power, would provide wholesale power to Matanuska. Matanuska, in turn, would become a larger cooperative, distributing power to about 85,000 members.
Matanuska claims that the acquisition would produce savings of at least $200 million during the next 25 years. It wants to refinance a large portion of Chugach's debt from the present 9 percent interest rate to a rate of about 7 percent. The refinancing alone, Matanuska says, would save about $10,000 per day, or $100 million during the next 25 years.
A Long and Rocky Road