Atlantic Energy/Delmarva Power & Light (A) Case Solution

This Case is about MANAGING UNCERTAINTY, MERGERS & ACQUISITIONS, NEGOTIATIONS, REGULATION, RISK MANAGEMENT

PUBLICATION DATE: February 13, 1998

In early 1996, they entered into merger discussions, but were not able to reach an agreement on cost because they couldn’t concur on what impact deregulation would have on Atlantic. In the presently controlled electricity marketplace, Atlantic was prosperous even though it was among the high-cost power companies in the area. But in a deregulated environment, where costs would certainly drop, Atlantic might become unprofitable and, thus, worth. The crucial problems are to establish how much to pay for Atlantic and how to structure a deal that can bridge the disagreements over value. Unlike specific scenarios where doubt can be resolved by hedging, there isn’t any means to hedge the magnitude of cost declines due to rivalry or the rate of deregulation.

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