Publications
Publications
- February 1998 (Revised December 1998)
- HBS Case Collection
Atlantic Energy/Delmarva Power & Light (A)
By: Benjamin C. Esty, Mathew M Millett and Tracy Aronson
Abstract
Delmarva Power & Light and Atlantic Energy are neighboring electric utilities based in Delaware and New Jersey, respectively. In early 1996, they entered into merger negotiations, but were unable to reach an agreement on price because they could not agree on what impact deregulation would have on Atlantic. In the currently regulated electricity market, Atlantic was profitable even though it was one of the high-cost power producers in the region. But in a deregulated environment, where prices would surely fall, Atlantic might become unprofitable and, therefore, worth significantly less. The key issues are to determine how much to pay for Atlantic and how to structure a deal that will bridge the disagreements over value. Unlike certain situations where hedging can resolve uncertainty, there is no way to hedge either the speed of deregulation or the magnitude of price declines due to competition.
Keywords
Valuation; Negotiation Offer; Government Legislation; Risk and Uncertainty; Mergers and Acquisitions; Contracts; Utilities Industry; Delaware; New Jersey
Citation
Esty, Benjamin C., Mathew M Millett, and Tracy Aronson. "Atlantic Energy/Delmarva Power & Light (A)." Harvard Business School Case 298-034, February 1998. (Revised December 1998.)
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