Delmarva Power and Light, and Atlantic electricity power is based in the neighboring state of Delaware and New Jersey, respectively. In early 1996, they entered into merger negotiations, but were unable to reach an agreement on the price, because they could not agree on what would be the effect of deregulation on the Atlantic Ocean. Currently regulated electricity market, the Atlantic was profitable, although he was one of the expensive electricity producers in the region. But in a deregulated environment, where prices likely to fall, the Atlantic may cause losses and, therefore, is much less. Key questions to determine how much to pay for the Atlantic and how to structure a deal that would overcome differences over the matter. Unlike some of the situations where hedging can resolve the uncertainty, there is no way to hedge or the rate deregulation or magnitude lower prices due to competition. "Hide
by Benjamin C. Esty, Tracey Aronson, Matthew Mateo Millett Source: Harvard Business School 19 pages. Publication Date: February 13, 1998. Prod. #: 298034-PDF-ENG
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