2011-09-23 / Business

Is SCANA for sale?

By John Temple Ligon

On Friday, August 19, StreetInsider.com said SCANA was not for sale - at least, that’s what SCANA CEO William B. Timmerman was saying. Before Timmerman had his say, the internet rumor mill had already tipped off stock speculators the day before, Thursday, and a share of SCANA stock experienced a short spurt in rising value.

As Timmerman put it on Friday, according to Street Insider.com, “We are aware of the unusually high trading activity in SCANA common stock yesterday. We are also aware of the internet- based rumor that SCANA is considering a sale of the company. These rumors are false, and we know of no corporate developments to account for the unusual market activity in SCANA’s stock.”

As of December 31, 2010, according to Yahoo Finance, Timmerman owned 63,599 shares of SCANA stock, which at Tuesday’s midday price of $41.35 gave Timmerman a $2.6 million stake in his company.

The Charleston Post and Courier on the Saturday following Timmerman’s Friday declaration added Timmerman “knew of no reason for the high volume of trades in its shares a day earlier.” At the close of trading on Thursday, SCANA was one of the top five biggest percentage gainers on the New York Stock Exchange. Ordinarily about 1 million of shares of SCANA stock were traded daily. On that Thursday, 3.9 million shares were traded. It was a day of general downvaluing on the stock market among growing fears about the economy. Few stocks ended the day up. SCANA came out of Thursday with a gain of 1.4 percent for the day, which it lost on Friday after the rumors failed to pan out.

To go back into the early 20th century is to understand how the inferred intention to sell SCANA got started. When SCANA’s grandparent bought Columbia Railway, Gas and Electric Company, the company agreed to operate Columbia’s trolley transit essentially for the life of the community and the life of the company. In the early 1930s, however, the company had to go to the United States Supreme Court against the City of Columbia ( and the city’s lawyer Irvine Belser) to be told it, in fact, had a deal it had better keep.

SCE& G kept its transit obligations and by 1946, SCE&G was listed on the New York Stock Exchange.

The electric trolleys resumed after court direction, but buses eventually replaced trolleys, and by about 1970, buses began to lose money. By 1990, the buses began to lose real money, more than a few million dollars a year, but at least the federal government gave SCANA annual operating subsidies. The federal government offered capital improvement subsidies, money for new buses, but SCANA declined the opportunity for new buses and chose to run retired and refurbished buses. As buses broke down, ridership also broke down.

In 1979, Margaret Thatcher began to run the U.K., and a year later Ronald Reagan began to run the U.S.A., and both leaders were pushing for electric utility deregulation that would lead to consolidation for economies of scale. SCANA was held back by a 1930s law that would not allow SCANA to acquire out-of-state utilities and would not allow out-of-state utilities to acquire SCANA as long as SCANA was responsible for the bus system.

Between 1982 and 1992, according to the SCANA annual report for 1992, bus ridership fell by about 50 percent in both Charleston and Columbia, putting both cities on the spot to take action and to take over the bus systems.

By 2002, both cities were in charge of the bus transit systems, and SCANA was free to take over or be taken over. Then the Lake Murray dam was showing its age. No company would move on SCANA and accept the liability of an unsafe dam holding back a lake with a 500-mile shoreline upstream of hundreds of thousands of people. For about $300 million SCANA hit on its rate payers to cover the cost of a second dam as Plan B for the first.

Concurrent with the dam protection program came the nuclear power plant expansion. No company would move on SCANA while there were still questions about the two new nuclear reactors in Jenkinsville. SCANA’s influence in the state legislature paid off with the Base Load Review Act, which set up a pay-as-you-go construction costs recovery finance plan. For the $9 billion project putting up two new Westinghouse AP1000 reactors, SCANA can collect from its customers as construction costs come through. Previously, and elsewhere still, the utility had to borrow the money to build new nuclear reactors, collecting off its rate payers once the rate payers actually began to pay the increased rates for the more expensive electricity. SCANA is saving maybe $ 1 billion in finance costs during construction and reportedly another $4 billion for the life of the reactors.

To compare nuclear reactors and nuclear reactors, a quick check with Georgia Power’s two new Westinghouse AP1000 reactors under construction near Augusta and Duke Energy’s two new Westinghouse AP1000 reactors in Cherokee County, near Gaffney, and stark differences in reported costs surface. Georgia Power reports it’s spending $14 billion and Duke Energy, $11 billion, for what SCANA is getting for about $9 billion. Anytime a company can crank out the same work product for 20-40 percent less, buyers are attracted.

Corporate executives in most any industry see little reason to call off a buyer when companies typically change hands for a 20 percent premium, say, over existing value. The shareholding executives can do themselves well to let the buyer come on through. But some companies go up far more than SCANA’s little oneday 1.4 percent in value while takeover rumors circulate.

Just a couple weeks ago, Friday, September 2, the London based Financial Times reported, “Shares in AOL have risen 10 percent since Friday on reports that the internet access and content company could be poised to go private or be acquired ... But people close to the company said no deal is imminent... AOL shares were $15.36 each in afternoon trade.” That was the share price on Thursday, September 1. On August 10 a share was worth $ 10.22, so the share price at AOL during hints of a takeover actually gained by about 50 percent, or five bucks a share, which times tens of thousands of shares can make someone’s day.

Someone’s day could be coming to SCANA. All the major shareholders could come out all right. After all, they got rid of the bus system, doubled the dam, and they’re bringing in two new nuclear reactors for far less than the neighbors can build the same brand. SCANA is an attractive buy, regardless of what Timmerman and his 63,599 shares of SCANA stock say.

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