Missoula Mayor John Engen anticipates moving to condemn Mountain Water Co. as one step toward public ownership.
On Monday in a unanimous vote, the Missoula City Council authorized Engen to make a $50 million offer to purchase Mountain Water from the Carlyle Group, a global hedge fund.
However, in a memo about the offer, the mayor said Carlyle has suggested a $120 million price and has rejected the city’s “informal overtures” to acquire the company that provides most Missoula residents with their drinking water.
“I expect this offer will be rejected as well, at which point we will begin condemnation proceedings in district court,” Engen said, reading from his prepared memo. “My fervent hope is that Carlyle will then come to the table to begin serious negotiations.
“And if they don’t, our legal team continues to believe we will prevail in court and own our own water company at a fair price.”
In 1984, the city of Missoula filed a request for condemnation in court, and eventually, the Montana Supreme Court determined it was not in the public’s interest for the city to own the water company. However, Engen has said the legal landscape is different today.
In 2011, the Carlyle Group made a successful $102 million bid to buy Mountain Water and its parent company in California. Engen backed the sale to Carlyle, arguing it was the most direct path to public ownership.
Carlyle repeatedly has said the system is not for sale, but in his statement to the council Monday, Engen disagreed. Estimates for the purchase have ranged from $50 million to $80 million.
“If someone tells you Mountain Water is not for sale, it’s simply not true,” Engen said. “It was for sale the day Carlyle bought it.”
The global investment firm is moving away from public utilities to energy, he said. He said he believes Carlyle intends to sell Mountain Water and its sister and parent companies in California “in the very near future” to another enterprise “with no stake in our community.”
In a draft letter to Carlyle managing director Robert Dove, Engen sets a deadline of 5 p.m. Eastern time on Thursday, Feb. 4. “Failure to submit an acceptance by that date will constitute a rejection of the City’s offer for purposes of Montana law governing condemnation proceedings,” the draft letter says.
Last year, the council authorized the mayor to enter into negotiations with Carlyle to purchase the utility or, as a last resort, start an eminent domain takeover. On Monday, the council gave Engen approval with little discussion.
Councilman Bryan Von Lossberg wanted to be sure the council would have the opportunity to consider condemnation, should the acquisition go that route. Engen confirmed that was the case.
“Condemnation is serious business, and I’m not leading us down this path lightly,” Engen said in his statement.
Should the offer be rejected, Engen said he would bring his team of advisers to a public council committee meeting shortly thereafter to review the condemnation process in detail and the places “we might have critical decision points.”
The mayor formed a high-powered team of lawyers and financiers to put the deal together. In his memo, he said the offer reflects a price the attorneys and financial advisors “deem reasonable for an asset purchase.”
The team estimates that Carlyle Group purchased Mountain Water for some $50 million. However, Engen said the deal was part of a larger transaction and a final price remains undisclosed.
“If this were a negotiated stock purchase … the city of Missoula believes we could make a reasonable offer on the order of $60 million or more, but because Carlyle has not come to the table, we’re left to offer the investment fund about what it paid,” Engen said.
According to the memo, Carlyle has suggested the price for Mountain Water is $120 million, “more than double what they paid for it in 2011.”
“It is a price that we can’t pay, and it is unjustifiable by any commonly accepted method of valuation,” Engen wrote.
With water and its distribution on the table, the mayor said he believes the public’s interest is at stake. “We have one goal, which is to deliver clean, safe water to our citizens in the most effective and inexpensive way possible.”
Missoula is the only major city in Montana that does not own its own water utility. The system is notoriously leaky, but the city of Missoula has been trying to acquire it since 1979, when Montana Power Co. sold its utility to Park Water in California.
A draft letter from Mayor Engen to Carlyle managing director Robert Dove notes the following details of the offer:
• “The assets purchased will include all real property and improvements … together with all tangible personal property used to support the System and any and all water rights and any other associated rights.”
• “The city would assume none of the (Mountain Water’s) liabilities.”
• “The city and (Mountain) will mutually agree upon appropriate roles for management and the city will provide at-will employment offers.”
• “(Mountain Water) will facilitate customary due diligence investigations by the city with respect to (Mountain’s) assets, liabilities, finances and operations, including providing the City and its representatives with reasonable access to the Company’s personnel, vendors and customers.”
• “The city will engage an engineering firm to advise it on infrastructure conditions and capital requirements, and (Mountain) will cooperate with the reasonable requests of such engineers for access to … property, facilities, records and personnel.”
In other business, the council:
• Voted 9-2 to grant a conditional use permit for an accessory dwelling unit at 206 W. Central Ave. Councilors Annelise Hedahl and Jon Wilkins opposed it; Councilor Adam Hertz was absent.
• Unanimously approved new regulations for emergency homeless shelters and meal centers. The city code previously did not address those uses. The distance precludes the Union Gospel Mission from moving its meal center and operations to the Sweetheart Bakery on West Broadway, as it announced plans to do last year.
• Heard a request from the Missoula Senior Center for financial support from the city. According to center spokespeople, the organization is in financial trouble, and other cities in Montana help their respective senior centers with funding.