San Jose Water rejects offer from Cal Water

California Water Service Group made an offer to purchase the owner of San Jose Water (SJW Group) for $1.9 billion.California Water Service Group made an offer to purchase the owner of San Jose Water (SJW Group) for $1.9 billion. Photo: San Jose Water Company

An unexpected and unsolicited offer by California Water Service Group (Cal Water) to purchase the owner of San Jose Water (SJW Group) for $1.9 billion has been rejected by SJW Group’s board of directors over concerns about the proposal’s reliance on debt and job losses.

Earlier this month, San Jose-based Cal Water proposed to acquire neighboring San Jose-based SJW Group for $68.25 per share in cash, saying the proposed merger between two neighboring utility providers would create operational efficiencies that would ultimately benefit ratepayers.

That assertion, however, has been challenged by both SJW and The Utility Reform Network, a consumer group, whose executive director told the Mercury News there is “no guarantee that customers will be better off if this deal goes through.”

The buyout offer comes after SJW announced in March its intention to merge with East Coast-based Connecticut Water in a $750 million deal. SJW said the merger has far greater potential than Cal Water’s to achieve long-term operational efficiencies.  Any savings achieved from efficiencies are passed on to ratepayers under the requirements of the rate setting process administered by the California Public Utilities Commission.

Cal Water’s proposal, according to SJW, “could mean the elimination of up to 30-percent of SJW employees.” SJW says the deal is inferior to its approved plan of a Merger of Equals with Connecticut Water that will achieve “economies of scale” and would guarantee that no jobs would be lost.

“The non-binding indication of interest received from California Water Service Group talks about achieving cost savings, but does not articulate how those cost savings will be realized,” SJW spokesperson John Tang said in an email Thursday to elected officials, staff and community leaders. “In our experience, these savings from transactions are typically achieved through job reductions.”

According to company spokesperson Shannon Dean, Cal Water is committed to guaranteeing jobs for operations and customer service employees and to honoring all collective bargaining agreements. She however added that “there can be some overlap in executive, management, and back-office jobs”, but no immediate changes are expected and the company is “committed to providing fair severance”.

Also of great concern to San Jose Water is “the amount of debt Cal Water has proposed in its offer and whether their experience operating many small, disparate water systems gives Cal Water the technical and managerial experience necessary to successfully operate a major urban water system like San Jose.”

In an email to Cupertino Today, a Cal Water spokesperson said merging with SJW makes “perfect sense”.

“Bringing the two companies together will be a superb strategic and operational fit; we are both headquartered in San Jose, and we are intimately familiar with the priorities of SJW’s customer base and communities,” Cal Water spokesperson Yvonne Kingman said. “We expect that this transaction will result in meaningful cost savings for customers – primarily related to eliminating redundant public company costs, economies of scale in purchasing and sharing of resources, and operating efficiencies – and these savings would be shared with customers.”

1 Comment on "San Jose Water rejects offer from Cal Water"

  1. The merger (of two companies that many decades ago had the same ownership) makes great sense. Fundamentally, the combined company will provide equal or better service for a lower cost to customers. Additionally, although in better shape than the water systems in older American cities, California’s water infrastructure is in constant need of significant capital investment to maintain its safety and reliability. A bigger utility has greater economies of scale and can do this for existing and future customers at a lower cost than can CWT and SJW as separate companies.

    Once this merger is approved, I urge the new company to acquire American States Water Company. Such an acquisition would further improve economies of scale, particularly in greater LA where American States and Cal Water own systems that in some cases are literally across the street from each other.

    The CWT/SJW merger should be accepted. It is good for customers, good for the environment and; based on the premium, good for shareholders.

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