relationships and its activities, prior to the filing of the instant amended application, with the investment banking firm of Coffin & Burr, Inc. have raised serious questions whether competitive conditions could be maintained if an unconditional exemption from competitive bidding was granted. In its original application filed in this proceeding in October 1948, Central Maine proposed to issue and sell 303,330 shares of common stock. The company proposed to negotiate solely with Coffin & Burr for the underwriting of the offering and requested an exemption from the competitive bidding requirements of Rule U-50 for that purpose. It appears that Coffin & Burr has acted as a principal investment banker and financial adviser for Central Maine for over 25 years* and may properly be characterized as Central Maine's customary or historical banker. The record in this case shows that prior to the hearing on the original application and prior to securing authorization, formal or otherwise, to enter into a negotiated transaction, the company entered into detailed negotiations with Coffin & Burr as to the terms of the proposed underwriting. The record also shows that while the original application was pending the company conducted field trips to permit underwriters, dealers, and institutional investors to inspect its plant and territory. The invitations to participate in such trips were issued in each case by Coffin & Burr pursuant to an arrangement with the company. These negotiations and activities were inconsistent with the policy announced by us in the New England Gas and Electric Association case decided in January 1948.5 After the hearing on the original application at which the above facts were made a matter of record but before the issuance of an order thereon, an amendment was filed. This second proposal eliminated the underwriting of the offering, but proposed that dealers be paid a fee for soliciting subscriptions from stockholders 3 This application proposed a waiver by NEPSCO of its preemptive rights and the entire issue was to be offered to the public stockholders of Central Maine for subscription on the basis of rights to purchase one share of new common stock for each two shares of common stock, for each two shares of 3.50 preferred stock, and for each share of 6% preferred stock held. • Our records show, and we take official notice of them in this respect, that Coffin & Burr in the period from 1935 to May 7, 1941, the date on which Rule U-50 became effective, either participated as a principal underwriter or obtained a finder's fee in each of the eight security issues of Central Maine. 5 In New England Gas and Electric Association we said, "We now announce that it shall hereafter be our policy to deny summarily any application for exemption from the competitive bidding requirements of Rule U-50 where competitive bidding is prima facie required and the applicant has, before obtaining an authorization from this Commission, entered into any discussions or any negotiations with respect to the terms of sale with any prospective purchaser of its securities." 27 S.E.C. 507 (1948). at a price to be fixed by the company and that a firm to act as manager of the solicitation be selected by the company on the basis of information received in response to written requests mailed to six investment bankers. Despite the risk free character of the transaction and the substantial compensation involved, only Coffin & Burr offered to act as manager of the solicitation program for the stock. Prior to a hearing on this second proposal, but after discussions with our staff, the application was further amended to the form presently before us. The record developed at the hearing on the present proposal shows that the company represents that it will negotiate with five investment bankers, of which Coffin & Burr is not one. Considering the history of this case as outlined above, we doubt whether competitive conditions could be maintained if the company intended to include Coffin & Burr among the underwriters with whom it proposed to negotiate. Upon the assumption that the company does not deal with Coffin & Burr as an underwriter in the proposed transaction and that competitive conditions are otherwise maintained, we are of the opinion, giving weight to the fact that the company's last attempt to sell common stock at competitive bidding was unsuccessful and in the light of its history and earnings' record since that time, that the proposed transaction falls within the conditions for exemption from Rule U-50 specified in paragraph (a) (5) thereof, and that the requested exemption should therefore be granted. APPROVAL OF STATE COMMISSION The issue and sale of common stock by Central Maine is subject to the jurisdiction of the Public Utilities Commission of Maine, the State in which applicant is organized and doing business. On January 24, 1949, the State Commission issued its decision and order authorizing the presently proposed issue and sale by Central Maine of 286,496 shares of its common stock, subject to the filing of the price, the name of the underwriters, and the amount of fees or commissions to be paid such underwriter and subject to the issuance of a supplemental decree with respect thereto." ACCOUNTING TREATMENT Central Maine proposes to credit the par value of the common stock sold to its Common Stock Account and any amount received over such par value to the Premium on Common Stock Account. Selling commission, fees and other expenses incurred in connection • Central Maine Power Company, U-1944. with the issue and sale of the common stock will be charged to the Earned Surplus Account upon completion of the proposed financing. FEES AND EXPENSES The applicant has not as yet submitted any estimates as to fees and other expenses to be incurred by it in connection with the proposed issue and sale of the common stock. We shall therefore reserve jurisdiction over the payment of all fees and expenses arising from the proposed transactions. CONCLUSIONS For the reasons stated above, we have concluded that it is appropriate to grant the requested exemption from the competitive bidding requirements of Rule U-50. As previously noted, the proposed issue and sale of additional common stock by Central Maine have been expressly authorized, subject to the entry of a supplementary decree, by the Public Utilities Commission of Maine, the State in which the company is organized and doing business. It appears that the issue and sale of such stock are solely for the purpose of financing the business of the applicant. Therefore, in accordance with the provisions of the third sentence of Section 6 (b) of the Act, we shall exempt the issue and sale of such stock by the applicant from the provisions of Section 6 (a), subject however, to the terms and conditions prescribed in Rule U-24 and to the following additional terms and conditions which we deem appropriate in the public interest and for the protection of investors or consumers: (1) That the proposed issuance and sale of common stock by Central Maine shall not be consummated until the results of negotiations with prospective underwriters, the price at which the stock is proposed to be sold, the fees or commissions proposed to be paid to underwriters, and the final order of the Public Utilities Commission of Maine with respect to the proposed transaction have been made a matter of record in these proceedings and a further order shall have been entered by the Commission in the light of the record so completed, which order may contain further terms and conditions as may then be deemed appropriate, jurisdiction being reserved for such purpose; and (2) That jurisdiction be reserved with regard to the payment of all other fees and expenses incurred or to be incurred in connection with the proposed transactions. We deem it appropriate to grant the request of the applicant that our order herein become effective upon its issuance. An appropriate order will issue. By the Commission (Commissioners McConnaughey, McEntire, McDonald and Rowen), Commissioner Rowen concurring in the result insofar as the granting of an exemption from competitive bidding is concerned, and Chairman Hanrahan being absent and not participating. APPENDIX A CENTRAL MAINE POWER COMPANY Condensed balance sheet as at Dec. 31, 1948, and pro forma to reflect the issuance of 256,496 shares of common stock and the payment of notes payable APPENDIX A CENTRAL MAINE POWER COMPANY Condensed balance sheet as at Dec. 31, 1948, and pro forma to reflect the issua 286,496 shares of common stock and the payment of notes payable • Proceeds of sale estimated by the company at approximately $4,400,000 have been applied to co mon stock at its par value of $10 per share and the remainder to premium on common stock. Selling commission, fees and other expenses, the aggregate of which is not now known, will be charg to the earned surplus account. |