Allegheny sues after DQE sends letter ending merger Plaintiff seeks to force Pa. utility to move forward in deal


October 06, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Allegheny Energy Inc. filed a federal lawsuit yesterday against DQE Inc., a Pittsburgh company that is attempting to terminate the two utilities' planned $4.1 billion merger.

The move by the Hagerstown-based utility is likely the opening legal volley in one of the first hostile takeovers ever among power companies, and a sign that Allegheny remains committed to a deal that would create the nation's 10th-largest utility.

"While we are profoundly disappointed by DQE's failure to honor its contractual obligations, our position remains clear and consistent: The merger is good for both companies' employees, shareholders and the communities we serve," said Michael P. Morrell, an Allegheny senior vice president and its chief financial officer.

The lawsuit, filed in U.S. District Court in Pittsburgh, asks the court to force DQE to move forward with the merger, to which the two companies agreed in April. A combined Allegheny/DQE would have more than 2 million customers in five states and $10.6 billion in assets.

TC The lawsuit also seeks to force DQE to provide "full cooperation" in seeking remaining regulatory approvals.

Allegheny hopes to obtain a temporary restraining order that would stop DQE from blocking either the merger or the lawsuit.

Morrell said Allegheny may seek damages of "hundreds of millions of dollars" if the court denies its bid to force DQE to proceed with the merger.

Allegheny's lawsuit comes in the wake of a DQE letter sent yesterday, officially canceling the merger. DQE had said in late July that it planned to end the agreement because of regulatory constraints and differences in future business strategy.

In the letter sent to Allegheny yesterday, DQE repeated that "it fully believes it has more than adequate grounds to terminate the merger." DQE contends that the alliance would cause "severe financial harm" and that Allegheny has "breached the merger agreement on numerous occasions by submitting unreasonable proposals."

DQE added that it plans to "devote its full attention to ensuring a fair and reasonable transition to electric competition in Western Pennsylvania."

"We believe they have no right to terminate the merger agreement," Morrell said.

"The merger can still happen, it just may not happen on the best of terms for all those involved. We obviously don't have a meeting of the minds, so it's hostile from that sense. But all the benefits are still there.

"This is definitely not over."

Pub Date: 10/06/98

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