In the summer of 1987, San Diego Gas & Electric sent its employees a document declaring that its board “has an obligation and responsibility to serve the best interests of its shareholders while maintaining reliability of service to its customers.” (Emphasis mine.) In short, serving shareholders was important, but so, too, was serving ratepayers. In public appearances, executives would state that the board had several constituencies: shareholders, employees, customers, communities, the environment, vendors.
That same year, Southern California Edison, the utility covering the Los Angeles metropolitan area, assigned an executive, Vikram Budhraja, to study possible savings that might come from a merger of Edison and San Diego Gas & Electric.
His conclusion: there would be no significant savings for Edison from a takeover of San Diego Gas & Electric.
The following year, San Diego Gas & Electric was attempting a merger with Tucson Electric Power. Edison believed that such a combination would threaten its huge market share in Southern California. So Edison prepared to make a hostile bid for San Diego Gas & Electric — and to hide the Budhraja findings.
Edison executives, including Budhraja, went back to the drawing board to see if they could find “savings.” Lo and behold, they did — $1.7 billion in savings over a ten-year period. Still, that would be a tiny percentage of the combined companies’ revenues over the decade.
And the data were phony, according to administrative law judges who studied the stats in 1991. George P. Lewnes of the Federal Energy Regulatory Commission said that Edison and San Diego Gas & Electric — which by then had capitulated to Edison — had used fabricated numbers to find savings. Lewnes blasted “the unreliability of the companies’ methodology” and the use of data “woefully lacking in credibility” and “inherently speculative and incomplete.” The savings were baloney, said Lewnes.
Two California administrative law judges were somewhat softer. They found $1 billion of savings over a decade, but after adjusting for inflation, the sum would be $613 million, and 94 percent of that would be labor savings — in other words, layoffs.
Mayor Maureen O’Connor, the San Diego City Council, the chamber of commerce, and the Coalition for Local Control worked to denounce Edison and convince the public that a merger was not in the public interest — largely because San Diego would lose a headquarters and employees and rates would go up, counter to Edison’s claim that they would go down. The groups such as the coalition didn’t have to spend much on advertising, because from the beginning, the San Diego public was overwhelmingly against the merger.
The community feared that Edison, with its snug relationship with the California Public Utilities Commission and its lobbying power, would have an easier time picking San Diegans’ pockets than San Diego Gas & Electric would. Members of the San Diego Gas & Electric board, holding fistfuls of stock, would rake in bucks, because Edison’s final bid was starkly above the market value of San Diego Gas & Electric stock.
Right from the start, it was clear that Edison would be wholly disingenuous when coming up with calculations, and once San Diego Gas & Electric surrendered and joined Edison in trying to get regulators’ okay for the merger, the local utility would be dishonest, too. San Diego Gas & Electric originally intended to fight Edison. Its chief executive, Thomas Page, and a delegation from the company went to Helen Copley, owner of the Union and the Tribune, which would merge in the early 1990s.
For some reason I have never understood, the papers did not jump immediately to Page’s support, and Page thought it was hopeless. But Copley conferred with her close friend, Mayor O’Connor, and they got the ball rolling. I began writing anti-Edison columns, and the late reporter Charles Ross sharply dug into the details where Satan was hidden. Ed Fike, Union chief editorial writer, wrote columns denouncing the deal, the Tribune blasted it, and so did other media in San Diego.
Once San Diego Gas & Electric’s board surrendered, this would be a planned marriage between the falsehearted and the fraudulent. The merger would create a $2.4 billion enterprise, the largest investor-owned electric company in the nation.
But mercifully, the merger was stopped before the partners could go through with it. San Diegans, led by O’Connor, local media, and business groups such as the chamber of commerce and the Coalition for Local Control, showed state and federal regulators that the merger was not in the public interest. In fact, it would be destructive to the public interest, because, in essence, Edison would have a license to steal from San Diego ratepayers, with the enthusiastic participation of former San Diego Gas & Electric board members, pillars of the community who stood to rake in a bundle of money if regulators okayed the deal.
The public be damned
Presiding at the proposed nuptials would be a law firm, New York–based Skadden, Arps, Slate, Meagher & Flom. This firm had sleazy clients — among them, Mike Milken, the junk bond/takeover king who had spent a spell in prison for his corporate depredations. Actually, you could almost say that Skadden Arps invented the hostile takeover, at least the ugly kind that prevailed in the 1980s and 1990s, leading, in some cases, to organized-crime-connected companies taking over reputable American firms. Skadden Arps came up with an offensive maneuver to aid the raider. If a board refused to accept a so-called reasonable buyout offer, Skadden warned the members that stockholders of the target company — in this case San Diego Gas & Electric — would sue each board member individually on the grounds that those shareholders had lost an opportunity to make lots of loot had the deal gone through. Skadden talked big numbers: some board members might be wiped out financially defending themselves, the law firm claimed.
Skadden’s opinion, in short, was that the public be damned. Not only would the community lose jobs and a headquarters, but local cultural organizations and charities would surely suffer. With the headquarters gone, vendors would lose business, and that would ripple through the San Diego economy. The only important factor in a merger of two companies was the comfort of the shareholder, said Skadden. It intoned to the San Diego Gas & Electric board in 1988, “The board’s principal obligation is to its shareholders. This precept is at the very essence of the proposition that directors are fiduciaries for the shareholders. We are unaware of any authority suggesting that directors are fiduciaries for any other constituencies,” such as the community.