(Bloomberg) -- PG&E Corp. rejected a $2.5 billion offer from San Francisco to buy the bankrupt utility giant’s wires within the city’s limits.
San Francisco’s offer significantly undervalues the company’s assets and a deal wouldn’t be in the best interests of its customers, PG&E Chief Executive Officer Bill Johnson said in an Oct. 7 letter to Mayor London Breed. He went on to say the company doesn’t need to sell its businesses to finance a restructuring and emerge from bankruptcy.
“We cannot accept your offer,” Johnson said in the letter. “If we ever do consider such sales, we have a duty to obtain the highest and best value for these assets.”
San Francisco has framed its takeover bid as a way for PG&E to raise money and help cover an estimated $30 billion in liabilities tied to devastating wildfires that its equipment ignited in 2017 and 2018. The damages from those blazes are what forced the company in January to enter the biggest utility bankruptcy in U.S. history. Now, the company has found itself competing with the likes of Pacific Investment Management Co. and activist investor Elliott Management Corp. over a restructuring plan.
PG&E has proposed a reorganization that would allow existing shareholders to preserve some of their stake in the company. The plan creditors led by Pimco and Elliott are pushing would all but wipe out current investors. The company’s shares were virtually unchanged in after-markets trading.
San Francisco officials said they weren’t deterred by the brush-off from PG&E.
“We aren’t surprised by PG&E’s response so far,” the mayor and City Attorney Dennis Herrera said in a statement. “We’re also not giving up. Now more than ever, it is clear that we must take back control of San Francisco’s electric service and achieve energy independence.”
State Senator Scott Wiener, a San Francisco Democrat who has backed a deal, said the rejection wasn’t surprising but that supporters will continue to press for one in bankruptcy court. “We’re not going to give up,” he said by telephone. “Bankruptcy is an unpredictable process and we’ll see what happens.”
Wiener said he was also looking at what could be done to move a deal forward on the state level. He declined to provide details.
‘Not So Welcome’
While California’s investor-owned utilities have traditionally held a lot of sway in Sacramento, PG&E is “not so welcome and powerful anymore,” Wiener said.
This week, the utility orchestrated the biggest preemptive blackout in state history to keep its power lines from starting wildfires amid high winds. The shutoffs drew outrage from homeowners and businesses, leading Governor Gavin Newsom to publicly blast PG&E for years of “greed and mismanagement.”
“PG&E’s performance in general, and in particular with this massive blackout, has shifted the politics,” Wiener said. “More and more people understand that it’s not up to the task.”
(Updates with city’s comment in seventh paragraph.)
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