New document reveals how SCANA came to be sold to Dominion

Dominion Energy’s proposed purchase of Cayce-based SCANA has its roots in late 2016.

That was when senior executives of SCANA, then South Carolina’s largest publicly traded company, took a hard look at their company — and the utility industry in general — and began to consider the possibility of a sale, according to documents filed with the U.S. Securities and Exchange Commission.

The utility, then the senior partner in a doomed, $9 billion nuclear construction project, sought advice from a Chicago-based legal firm, Mayer Brown, and also Morgan Stanley and RBC Capital Markets, two investment banks with expertise in mergers and acquisitions.

Over the next year, starting in March 2017, SCANA met with four power companies, including Dominion, about a potential deal, as it navigated a sea of uncertainty surrounding the V.C. Summer expansion project and the consequences of its failure in July 2017.

At one point, SCANA unsuccessfully tried to persuade Dominion to buy some or all of Santee Cooper’s 45-percent ownership stake in the nuclear project, just before the state-owned utility, a minority partner in the Fairfield County project, bailed on the effort last summer.

At another point, SCANA rejected an unnamed company’s $2.2 billion offer to buy SCANA’s North Carolina-based natural gas subsidiary, PSNC Energy.

Ultimately, SCANA whittled its list of potential buyers down to two, rejecting both companies’ requests for exclusive negotiating rights.

As talks with Dominion intensified late last year, the two utilities negotiated and rewrote at least six versions of the proposed buyout agreement, the filing states. That proposal still is subject to approval by a handful of state and federal commissions and SCANA’s shareholders as well as, indirectly, the S.C. Legislature.

Ultimately, the former Fortune 500 company paid Morgan Stanley $27 million and RBC Capital Markets $14 million for the investment banks’ help in evaluating the Dominion deal and their opinions endorsing it.

Early 2017: ‘Party A’ suggests a deal, Dominion emerges

Here’s a chronological look of how SCANA came to be sold, according to the newly filed document:

▪ In January 2017, SCANA’s board voted to explore the possibility of a sale or merger. The decision came a month after news reports raised questions about the financial stability of Westinghouse, the lead contractor at the V.C. Summer nuclear project.

▪ In late March 2017, around the time Westinghouse filed for bankruptcy, the chief executive of an unnamed utility – listed as “Party A” – approached then-SCANA chief executive Kevin Marsh at an industry event about the possibility of “pursuing a strategic transaction,” or buyout, the filing states.

▪ Two months later, Dominion got into the SCANA sweepstakes. The Virginia-based utility’s chief executive, Tom Farrell, set up a May 5 meeting with Marsh to discuss “various concepts and potential terms related to a potential strategic transaction between SCANA and Dominion Energy.”

Farrell didn’t make a formal offer, the filing states, but he suggested a half-cash, half-stock merger that would have paid SCANA shareholders a 15-percent premium to the value of their stock. Marsh said he would get back to Farrell after SCANA was finished evaluating its nuclear project, according to the filing.

Marsh relayed the conversation to SCANA’s board of directors. But it decided against seriously considering the offer, given “the considerable uncertainty surrounding the (nuclear) project and the challenges that third parties would have in valuing SCANA stock in light of those uncertainties.”

▪ A week later, Marsh arranged a meeting with the chief executive of a third power company – Party B. That executive soon told Marsh his company was not interested in a deal.

▪ SCANA and Dominion executives met again on July 12, just weeks before the nuclear project’s abandonment. But Marsh didn’t ask for the meeting to discuss Farrell’s buyout proposal. Instead, he wanted to know if Dominion would be interested in buying some or all of state-owned Santee Cooper’s 45-percent ownership stake in the failing nuclear project.

Dominion wasn’t interested.

V.C. Summer project collapses; ‘Party C’ wants a deal

On July 31, Santee Cooper pulled out of the project, which had suffered through years of construction delays and cost overruns.

Santee Cooper’s move prompted SCANA to pull the plug as well later that day. Still, Dominion and SCANA leaders had agreed to keep in touch about a possible deal.

▪ In early August, within days of the abandonment, Marsh spoke with executives from three unnamed utility companies, including a new contender – Party C.

Parties A and C expressed interest in a strategic transaction with SCANA, while Party B remained uninterested, the filing states.

▪ On Oct. 1, Marsh and Jimmy Addison, then SCANA’s chief financial officer and now its chief executive, met with Dominion executives to talk over another proposal from Farrell, one that resembles the agreement the companies reached months later.

That deal would have given SCANA shareholders cash for 30 percent of the value of their stock and Dominion stock for the remaining 70 percent. It also would have lowered the bills of SCE&G customers and shortened the time period those customers would have to continue to pay for the failed project.

▪ Three days later, the CEO of Party A called Marsh and learned SCANA had received a conceptual — or tentative — offer. The executive again expressed interest in a similar transaction but said his company wouldn’t make an offer unless SCANA agreed not to negotiate with any other companies. However, the Party A executive could not provide Marsh any details of a potential proposal, the filing states.

▪ On Oct. 6, two days later, Party C again expressed interest but similarly did not make a proposal.

▪ That same day, SCANA’s board, meeting with representatives of Mayer Brown, Morgan Stanley and RBC Capital, decided to begin formally exploring a “strategic transaction” with Dominion and Party A. The company entered into confidentiality agreements with both on Oct. 8, with SCANA refusing to grant either company exclusive negotiating rights.

▪ On Oct. 10, Party B – which previously had said it had no interest in buying SCANA – said it had had a change of heart but offered no details of a future proposal.

▪ On Oct. 13, Morgan Stanley and RBC Capital Markets officially were hired as SCANA’s financial advisers.

▪ In mid-October, Party A pulled out of its buyout negotiations, citing the uncertainty surrounding SCANA and its future electric rates. That led SCANA to move forward with its Dominion negotiations.

Sell the N.C. gas subsidiary?

Those talks heated up in late November, after SCE&G’s offer to cut customers’ electric rates by $5 a month fell flat with S.C. lawmakers and the general public.

SCANA also announced it had hired advisers to counsel it on a strategic combination, publicly announcing to the financial world — in corporate-ese — that the troubled utility was for sale.

▪ On Nov. 27, Farrell offered SCANA an updated offer. SCANA shareholders would get 20 to 25 percent of the value of their stock in cash, with the rest in Dominion stock. The offer was for 30 percent more than SCANA’s depressed stock was selling for – closely resembling the current deal.

▪ At a Nov. 29 meeting, SCANA’s board approved more discussions with Dominion, after executives Marsh and Addison endorsed the offer.

▪ On Dec. 1, the first draft of the Dominion deal was drawn up. Subsequently, it was revised at least six times – reflecting negotiations over the price, break-up fees and proposed benefits for SCANA’s electric customers and shareholders.

▪ On Dec. 19, midway through the process, incoming SCANA CEO Addison met with an executive of Party C. The company was interested in buying SCANA, but it also made a separate, $2.2 billion offer to buy SCANA’s North Carolina-based natural gas subsidiary, PSNC Energy.

That bid was rejected after Addison advised the SCANA board that the offer undervalued PSNC.

▪ On. Jan. 2, Dominion and SCANA finalized the deal.

SCANA’s board voted unanimously for the acquisition after it was endorsed by both Morgan Stanley and RBC Capital Markets.

This story was originally published February 15, 2018 at 7:04 AM with the headline "New document reveals how SCANA came to be sold to Dominion."