(Adds analyst comment, share price)
By Michael Erman
NEW YORK, June 16 (Reuters) - A New York administrative law judge recommended on Monday that state regulators disapprove Iberdrola SA’s (IBE.MC) $4.5 billion takeover of U.S. utility Energy East Corp EAS.N, saying the deal is not in the public’s best interest.
New York’s Public Service Commission — regulators who oversee the state’s utilities — could kill the deal by not approving it.
“The commission should disapprove the transaction precisely because its lack of potential synergies or other benefits (when combined with the attendant risks) means that disapproval would avert a net detriment rather than forfeit an opportunity,” Administrative Law Judge Rafael Epstein wrote in his decision.
Should the commission approve the deal, Epstein recommended it be subject to several preconditions.
This would include prohibiting the company from owning electric generating plants interconnected with Energy East transmission and distribution systems in New York and requiring the company to shell out nearly $650 million of positive benefit adjustments for customers in New York.
Jefferies & Co analyst Paul Fremont said Iberdrola has reacted negatively when similar terms were proposed earlier.
“If we take Iberdrola at its word and I do than I think the likelihood (of a deal) is diminished as a result of the recommendation,” he said.
Fremont also pointed out that, under the terms of their agreement, the companies could walk away from the deal as early as next week.
The Department of Public Service’s staff, which advises the commission, has already opposed the acquisition, saying the deal’s potential benefits are insufficient to satisfy the state’s public interest standard.
Utility mergers in the United States are notoriously difficult to complete, often requiring the parties to receive approvals from state as well as federal regulatory agencies.
If the commission votes down the merger, it would become the latest in a line of high-profile utility deals to fall victim to local politics, which includes Exelon Corp’s EXC.N bid for Public Service Enterprise Group Inc (PEG.N) and FPL Inc’s (FPL.N) scuttled acquisition of Constellation Energy Group Inc CEG.N.
Shares of Energy East fell $4, or 15 percent, to $22.75 on the New York Stock Exchange on Monday. (Reporting by Michael Erman; editing by Jeffrey Benkoe and Gunna Dickson)
