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SCANA began exploring sale months before VC Summer abandonment

SCANA Corp., now in the middle of a contentious acquisition proposal from Dominion Energy Inc., began exploring a sale several months before the abandonment of the V.C. Summer nuclear expansion, according to details revealed in a recent filing.

Richmond, Va.-headquartered Dominion announced Jan. 3 that it agreed to acquire SCANA in a $7.9 billion stock-for-stock deal pitched as a lifeline to the troubled South Carolina company and its customers following the collapse of the more than $9 billion nuclear project.

While the fallout from the July 2017 decision by subsidiary South Carolina Electric & Gas Co. to cease construction of the V.C. Summer reactors catapulted SCANA into M&A rumors, the search for a suitor began in late 2016, Dominion Energy's Feb. 14 Form S-4 filing with the SEC shows.

SCANA's senior management and board of directors began "preliminary preparations" and engaged in high-level discussions with outside legal counsel, as well as Morgan Stanley and RBC Capital Markets, to "proactively explore the possibility of a potential strategic transaction," and to provide suggestions on potential third parties SCANA could contact if the board opted to pursue a sales process.

Parade of suitors

Outside of Dominion, NextEra Energy Inc., Duke Energy Corp. and Southern Co. have all been rumored in recent months to have an interest in purchasing SCANA.

The federal filing shows now-retired SCANA Chairman, President and CEO Kevin Marsh was approached by the CEO of another utility, referred to as Party A, at an industry event in late March 2017 and was told the utility would be interested in talking to SCANA if the company decided to pursue a strategic transaction.

Marsh, who left the company at the end of 2017, also met with Dominion Energy Chairman, President and CEO Thomas Farrell II on May 5, 2017, in Columbia, S.C. The SEC filing indicates Farrell communicated various concepts and terms tied to a potential strategic transaction between the companies but the SCANA board ultimately decided not to pursue Dominion's proposal based on the "considerable uncertainty" surrounding the V.C. Summer project and challenges with valuing SCANA.

In a May 12, 2017, meeting arranged by Marsh, the CEO of another utility company, referred to as Party B, was asked whether the company would be interested in purchasing ownership in the V.C. Summer project. The CEO later informed Marsh that the company was not interested in the ownership stake.

Marsh and SCANA Executive Vice President and CFO Jimmy Addison, now the company's CEO, met with Farrell and Dominion Energy Executive Vice President and CFO Mark McGettrick in July 2017 in Columbia, S.C. At this meeting, Marsh pitched the idea of Dominion acquiring Santee Cooper's stake in the scrapped nuclear reactors, but Farrell said the company "had no such interest" and wanted to proceed with reviewing a strategic transaction with SCANA. Marsh, however, said SCANA was "not prepared to proceed with that step at that time."

Shortly after the decision to abandon the nuclear reactors, Marsh received a call in early August 2017 from an executive of another utility company, referred to as Party C, who expressed interest in talks with SCANA on a strategic transaction, according to the SEC filing.

"At about that time, the chief executive officer of Party A also contacted Mr. Marsh and re-expressed Party A's interest in discussing a strategic transaction with SCANA if SCANA was interested in such a transaction," Dominion said in the filing.

Marsh and Addison met with Farrell and McGettrick again Oct. 1, 2017, in Columbia, S.C., at which time Farrell conveyed new concepts and terms for a potential transaction, including "consideration to SCANA's shareholders in the form of 70% Dominion Energy common stock and 30% cash, reflecting in total a premium of approximately 20% over the recent price of SCANA common stock." SCANA's stock was trading around $48 in early October 2017 after trading near $70 at the beginning of 2017.

Marsh also received a telephone call from the CEO of Party A and was told the company had been "separately approached about a potential purchase of Santee Cooper and wanted to discuss the potential for SCANA and Party A to also engage in a strategic transaction." Meanwhile, a representative of Party C again indicated to Marsh that Party C would be interested in talking to SCANA about a potential strategic transaction.

The SCANA board was informed of these discussions at an Oct. 6, 2017, meeting and decided to "move forward with exploring the possibility of a strategic transaction with Dominion Energy and with Party A, including providing due diligence information to each of Dominion Energy and Party A, and authorized SCANA's management and advisors to proceed accordingly."

The CEO of Party B called Marsh on Oct. 10, 2017, and expressed an interest in talking with SCANA about a strategic transaction but indicated no interest in acquiring ownership in V.C. Summer.

That same day, Marsh and senior management met with the CEO and representatives of Party A in Columbia, S.C., to discuss the benefits and opportunities of their potential merger. Party A indicated such a deal would involve SCANA's shareholders "receiving solely the common stock of Party A in the transaction" but could not provide the amount of consideration shareholders would receive at the time.

In mid-October 2017, the CEO of Party A told Marsh that the company was "not able to narrow a valuation range for SCANA" and ultimately cut off talks about a potential merger.

Dominion takes the lead

Dominion and SCANA continued discussions in late November 2017.

Dominion's new terms included "consideration to SCANA's shareholders in the form of 75% to 80% Dominion Energy common stock and 20% to 25% cash, reflecting in total a premium of approximately 30% over the recent price of SCANA common stock."

Dominion provided an updated proposal Dec. 15, 2017, which included "an all-stock, tax deferred transaction with a value of $54.50 per share of SCANA common stock." The stock closed at $44.42 on Dec. 15, 2017.

Addison met with an executive of Party C days later and was told that Party C had a long-term interest in acquiring SCANA. The executive also indicated that Party C would be interested in acquiring SCANA subsidiary Public Service Co. of North Carolina Inc. for $2.2 billion. The SCANA board, at Addison's advice, dismissed this proposal.

The board on Jan. 2 unanimously approved the Dominion merger agreement. Under the deal, SCANA shareholders will receive 0.6690 share of Dominion Energy's common stock for each share of SCANA, the equivalent of $55.35 per share.