Allegheny extends deadline on vote

Stockholders meeting to reconvene Friday

Utility seeks to curb share rights

March 08, 2003|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

A day after Chairman and Chief Executive Officer Alan J. Noia announced his retirement from financially troubled Allegheny Energy Inc., its board of directors yesterday extended the deadline for a crucial proxy vote by a week, allowing shareholders more time to decide whether the company can sell stock privately.

Allegheny adjourned a special shareholders meeting in New York and said it will reconvene it Friday to count the vote and announce the results. Previously, the company said it would announce the results yesterday.

Amending Allegheny's charter to eliminate language giving stockholders the first right to buy new shares or convertible securities is an important tool the Hagerstown utility needs to raise cash and repay debt, company officials said.

Passage requires a majority of Allegheny's 126.6 million shares.

After the shareholder meeting in New York, Noia told Bloomberg News that a majority of the 59 percent of outstanding shares counted so far had voted in favor of the charter revision.

Noia said Allegheny wants more time to build support for the plan, which had drawn criticism from investors unhappy with the stock's 85 percent drop over the past year.

"The shareholders are just very angry with the company because of our poor performance," Noia told Bloomberg. "The proposal had become a lightning rod for shareholders to express their support or disappointment. I got a lot of letters."

"Right now, we're looking at every option we can to raise capital, and the pre-emptive rights provision is a significant impediment to that, especially to private equity," said Debbie Beck, an Allegheny spokeswoman.

"Our board has definitely been examining a number of options to ensure that we have the financial flexibility to move forward. And the company believes it is in the best interest of everyone to allow us to have as many options as possible."

Allegheny had previously said that several companies have expressed interest in buying securities convertible to Allegheny shares.

In letters to shareholders, Allegheny urged a vote to support removal of the pre-emptive rights provision. Institutional Shareholder Services, a Rockville provider of proxy voting and corporate governance services, also urged shareholders to vote for the plan.

But some investors voiced concern that their shares would be diluted. Gabelli Asset Management Co. in New York, whose clients own 1.5 million shares of Allegheny, had said it intended to vote against the proposal. A Gabelli analyst said yesterday that Noia's resignation prompted the company to extend the proxy voting.

"Because that news came out so late Thursday, my speculation is that they want to give institutions more time to think about this new piece of important news," said Barry Abramson, a utilities analyst in Gabelli's research division.

"I don't know whether portfolio managers here will change their mind, or if it will affect how other institutions will vote. ...

"I think the company is in a very serious situation right now," Abramson said. "They have a lot of financial problems and legal issues to work out. [Noia's] retirement doesn't change or solve any of those problems. But I think some investors wanted to see new leadership and that it's possible that the right new leadership could encourage more institutions to make more investments in the new equity."

Other analysts said they had expected the vote to be close.

"It was appearing to be a very close either way, in terms of margin," said David B. Burks, a utilities analyst with J.J.B. Hilliard, W.L. Lyons. "From the company standpoint, maybe having a new CEO may allow the company to put on a new face and restore some confidence on Wall Street, which it has lost recently.

"Perhaps people who were disappointed with the management and who might have voted against the proposal might give the vote more consideration now," Burks added.

Allegheny has been struggling since October, when two of its subsidiaries defaulted on about $1.3 billion in loans. On Feb. 25, the company received a $2.4 billion refinancing deal to avoid bankruptcy.

Despite the respite, analysts say, the company has much to do to restore its financial health and investor confidence.

It has yet to release financial results for 2002 and first quarter 2003. Errors discovered during a comprehensive review will most likely require earnings restatements, the company said.

Allegheny is also tangled in legal battles with California over a $4.4 billion power supply contract and with Merrill Lynch & Co. Inc. over the trading unit it bought from the investment firm for $490 million in 2001.

Allegheny's stock has also taken a beating in the last two weeks after company executives disclosed that earnings this year and next will be lower than expected, and that the utility lost money on its efforts to hedge valuable contracts to provide power to a California state agency.

The troubles that dogged Allegheny over the past year made a change in management likely, said analysts, who were nevertheless surprised by the timing of Noia's announcement. Noia, 57, said he will remain until a successor is named.

Shares of Allegheny rose 16 cents yesterday to close at $5.66 on the New York Stock Exchange.

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