Allegheny vote OKs private stock sale

Utility's management favored it as way to help repay debt

`We are pleased'

March 15, 2003|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Locking in a key part of its survival plan, Allegheny Energy Inc. said yesterday that a slim majority of shareholders voted to amend its charter to allow private equity sales that will help the Hagerstown utility repay debt.

Nearly 52 percent of 126.6 million shareholders voted during a special meeting in New York to eliminate a "pre-emptive rights" provision that would have entitled current investors to buy new shares or convertible securities before Allegheny could offer them to anyone else.

Allegheny, which barely avoided bankruptcy last month by securing a $2.4 billion refinancing deal with its lenders, said the ability to sell stock privately will give the company more flexibility to raise cash.

Company officials had postponed the original vote by a week to drum up support for the charter revision.

"We are pleased that our stockholders voted to remove the pre-emptive rights provision," Alan J. Noia, chairman, president and chief executive of Allegheny, said in a prepared statement. "Although more common many years ago, today few public companies have pre-emptive rights. By eliminating pre-emptive rights, we will remove a significant impediment to any private sale of equity securities and will now have greater flexibility to raise additional capital as we work to restore the financial health of our company."

Allegheny has been struggling since October, when two of its subsidiaries defaulted on about $1.3 billion in loans. Shortly after negotiating the new financing deal, Noia surprised investors by announcing his retirement after 34 years with the company.

The 57-year-old executive, who has been highly criticized for leading the company into heavy debt and risky business ventures, is to remain with Allegheny until a successor is named.

Asset sales pursued

To help turn things around, the company said, it has been pursuing sales of several assets and examining ways to further reduce costs and improve operating efficiencies. That could reduce the need to issue equity, company officials said.

"It definitely provides flexibility for management to meet their goals," said Craig Shere, an energy analyst at Standard & Poor's Investment Advisory Services.

"The big question is how will this play out in terms of their capital funding? Private funding would be more expensive than public because it tends to be less liquid and institutions tend to drive harder bargains.

"There's a lot they have to weigh right now," Shere said. "Whatever they decide to do, they have to take into account their immediate needs, third-quarter needs when they have the first paydown of their refinancing loan, and interest payments.

Many shareholders had expressed concern about dilution of their current holdings should Allegheny decide to offer private equity, but company officials said those concerns have been taken into consideration.

"It just gives us another option to explore," said Allegheny spokeswoman Debbie Beck.

"As we've said in the past, we've been approached by several well-known firms who have expressed an interest in making equity investments in the company.

"However, before selling equity in any form, our board and management team would carefully consider the effects on our stockholders and would seek to protect the value of our stockholders' current investment in the company," Beck said.

Statements not filed

Allegheny is prevented from selling shares publicly because it has yet to file 2002 and first-quarter 2003 financial statements with the Securities and Exchange Commission.

Earlier this week, Allegheny postponed its annual shareholders meeting from May until a comprehensive review of its finances has been completed.

Shares of Allegheny increased 1 cent to $5.08 in trading on the New York Stock Exchange yesterday.

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