Cobb EMC agrees to buyout deal

Marietta-based Cobb EMC has reached a deal with customers who sued it last year, lawyers for both sides announced Thursday.

If finalized within the next two months, the agreement would end a year-long legal battle between Cobb EMC’s customers and the two companies that together supply electricity in five north metro Atlanta counties.

Under the proposed deal, the customer-owned electric cooperative will buy out all other shareholders of Cobb Energy, the for-profit company that operates it, at a cost of between $10 million and $14 million.

The co-op will also assume additional debt and liabilities, including approximately $18 million outstanding on a line of credit.

Lawyers for the customers said it will save the co-op far more than that over time, by putting Cobb EMC’s operations, equipment and employees back under Cobb EMC control.

The deal isn’t final.

A Cobb County judge signed off on it preliminarily Thursday. But both sides have until Nov. 10 to back out of it; if they don’t, a notice on its details will go out to all Cobb EMC customers and a fairness hearing will be held Dec. 2 in Cobb County Superior Court.

Since 1998, Cobb Energy has operated the nonprofit Cobb EMC under a 40-year contract that eventually allowed it to charge an 11 percent markup on its costs.

In the lawsuit, customers said that arrangement siphoned co-op assets and enriched insiders — including Dwight Brown, the chief executive of both companies — at the co-op’s expense.

The proposed deal terminates the Cobb Energy contract.

That contract’s markup alone would have cost the co-op $170 million over the balance of its term.

The agreement lays no blame, and Cobb EMC attorney David Flint said the co-op isn’t taking any.

“In agreeing to the settlement, Cobb EMC did not concede that there was anything wrong with its relationship with Cobb Energy,” Flint said.

“The structure is proper and appropriate. We are willing to do this settlement only to stop this litigation and the expense of the litigation.”

Despite that fact, the agreement includes 17 pages of corporate governance policies enacted by Cobb EMC, including safeguards against conflicts of interest.

CEO safe, board votes set

Parts of the settlement deal are likely to be controversial.

No heads will roll, for instance.

Brown, the architect of the arrangement that attracted the lawsuit, will remain at the co-op’s helm until 2011.

Asked if his clients liked that, plaintiffs attorney Pitts Carr was silent for a long moment.

He then said Georgia law doesn’t allow the court to oust officers or directors in the kind of lawsuit customers filed.

The proposed deal also requires no changes in the co-op’s board of directors.

But it sets a timetable by which seven of the board’s 10 directors could be replaced by a vote of the co-op’s members over the next 10 months.

Carr said his clients had unwound the relationship between the co-op and Cobb Energy and that the agreement “stops the bleeding.”

He said the co-ops customer-owners need to pay attention to the co-op’s governance and vote in its board elections going forward.

Brown is hired by and works for the board.

Under the settlement agreement, Brown will no longer earn a salary from Cobb Energy, most of which will be sold or liquidated.

The two companies had shared his roughly $600,000 salary. Brown’s contract with Cobb Energy will be bought out for $486,000, the lawyers said.

Cobb Energy breakup

The co-op will pay Cobb Energy’s preferred shareholders, including Brown and Brown’s wife, $25 per share for their stock — the same price they paid for it. Brown and his wife purchased $3 million worth of that stock with a loan from both companies, later forgiven.

Common shareholders, Cobb Energy employees who are part of an in-house stock option plan, will get what that plan spells out: Cobb EMC’s common stock was last valued at $41.

In exchange, the co-op will get back the employees and meters, all of which it turned over to Cobb Energy a decade ago.

It will also get 100 percent ownership of a $40 million computer billings system that had been 70 percent owned by Cobb Energy: That system accounts for most of Cobb Energy’s current debt.

The co-op will get the proceeds from Cobb Energy’s sale of most of its businesses or their assets.

The co-op will also get all profits from the two businesses that Cobb Energy will keep.

The company will keep ProCore Solutions, a call center business that also sells services to other co-ops, and a tree-trimming company. Both are profitable. In the past, those profits helped fund dividends for preferred stockholders.

An independent accounting firm, Houlihan Lokey, will review the settlement proposal to determine if its in the co-op’s best interests.

That review will determine only if its a good deal going forward. The firm will not evaluate what happened in the past.