Edison’s Hostile Takeover of Sdg

Edison’s Hostile Takeover of Sdg

Case Study 3: A city divided, Edison’s hostile takeover attempt California was in a serious recession in the late 1980s. Entities everywhere were struggling financially, including Southern California Edison, a power utility located in a suburb of Los Angeles. Southern California Edison (Edison) was also struggling because Los Angeles’ population growth had begun to slow. As Edison looked around for solutions, it noticed that its relatively close neighbor, San Diego, was not suffering from a population growth slowdown, but was, in fact, the fourth-largest-crowing city in the United States.

Edison decided the answer to its woes was to envelop San Diego Gas & Electric (SDG&E) through a hostile takeover. The first hostile takeover bid was presented on July 26, 1988. SDG&E rejected it and two successive bids. In fact, SDG&E even asked the state to stop Edison’s takeover attempt. Yet, abruptly on Nov. 30, SDG&E accepted an Edison bid of $2. 5 billion. City officials, civic leaders and San Diego residents were unnerved and a discussion of a municipal takeover of SDG&E began.

SDG&E responded by dropping out of the Chamber of Commerce; and rumors began circulating that Edison had offered some SDG&E officials positions if they agreed to the takeover. Suddenly, San Diego was divided among two camps, those in favor of the merger and those opposed to it. In favor was San Diegans for the Merger, Edison and members of management and the board of directors at SDG&E. Opposed was, the Coalition For Local Control (CFLC), San Diego Mayor Maureen O’Connor, City Attorney John Witt and the majority of employees at SDG&E.

Immediately, the groups opposed to the merger were at a disadvantage. Edison began to fund San Diegans for the Merger. In total, Edison and its supporters spent more than $2. 2 million on advertising and publicity campaigns, an amount that the grassroots networks opposed to the merger could never fathom. However, those opposed to the merger had greater numbers and some very prominent San Diegans on their side. The Los Angeles Times eported that, “In a highly unusual show of cooperation, a wide array of business, labor, government, environmental and consumer representatives… announced the formation of a coalition to begin a ‘siege’ of Southern California Edison that is designed to stop a proposed merger with Sand Diego Gas & Electric” (Johnson). Coalitions and alliances are created when organizations join together in a common purpose. The combined energy offers a real opportunity for strategic communication initiatives (Smith, p. 98).

The groups use a strength-in-numbers strategy to compound their influence and enhance their ability to break through barriers while trying to relate to their publics (Smith p. 98). The CFLC had several influential opinion leaders on its side that it put to use immediately. These included Mayor O’Connor, the San Diego Chamber of Commerce and the Sierra Club of San Diego, to name a few. The Los Angeles Times stated, “Besides organizations, the coalition has attracted support from more than 70 ‘private sector members.

The initial list…resembles a ‘Who’s Who’ in San Diego” (Johnson). Mayor O’Connor spoke out asking community leaders to aid the CFLC with money and talent and local radio and television stations aired the Coalition’s ads at no cost as a public service. Despite the distinct financial disadvantage the CFLC had compared to Edison’s supporters, the coalition it built had long arms. It reached environmentalists, local government, local unions, citizen action groups, media and a grassroots public, all of whom helped spread its key messages.

The two groups’ key messages were as different as they could be. Edison promoted that the merger would be cost-effective; the community would benefit from a rate reduction; the environment would be protected; and shareholders would benefit. On the other side, the CFLC’s messages were that the utility’s headquarters relocation would damage corporate presence in San Diego (a sore subject after the recent loss of Pacific Southwest Airlines corporation); jobs would be lost; pollution would increase; and the merger would create a utility reminiscent of the 1930s utility trusts.

Edison focused its entire message campaign on advertising, publicity campaigns, pamphlets and flyers. CFLC focused their much smaller budget on reaching the decision makers by focusing on third-party advocates who had influence with the California Public Utility Commission (the group who would ultimately approve or deny the merger). CFLC used a highly emotional campaign, refuting the claims made by Edison. They also used the recent loss of Pacific Southwest Airlines to question what impact losing SDG&E to Los Angeles would have on the stability and longevity of San Diego.

Mayor O’Connor was a prominent spokesperson in the campaign, which garnered much media attention and moved the story from the business section to general news, which also positively affected the grassroots effort. As the CFLC message took hold and spread, Edison increased its advertising, spending $2. 2 million. CFLC member and Greater San Diego Chamber of Commerce President Lee Grissom said, “If we had the same amount of money to spend as SDG&E (and Edison) I don’t think I would spend it that way” (Johnson).

Edison’s goal with its big-money campaign was to convince San Diegans that the merger would benefit them in the long term – especially in their pockets with a rate reduction. What Edison didn’t include in its campaign was any defense against the CFLC messages or studies refuting their claim of financial gain to San Diegans. Edison also failed to focus any message toward the CPUC, even though the final decision regarding the merger lay with that organization. It also didn’t have any messages to offset the opinion leaders.

For example, one of Edison’s key messages was that the environment would be saved; yet the president of the local Sierra Club was against the merger. Several state and federal investigations revealed that the merger would not benefit San Diegans though lower pollution or lower electric rates, yet Edison continued to promote these messages. The battle waged for three years. By that time, an overwhelming percentage of the public opposed the merger thanks to the media and public relations effort by CFLC.

When it came time to vote, the CPUC unanimously denied Edison’s proposed merger with SDG&E. Although the California Public Utility Commission is composed of appointed officials, they are absolutely subject to public opinion. For one thing, the commission is a public one (as stated in its name). Its mission, according to its website, is to “Serve the public interest by protecting consumers and ensuring the provision of safe, reliable utility service…” There is no way to “serve the public interest” without knowing what public opinion is and taking that into account.

Although appointed officials do not have the reality of losing an election should they anger a constituency, they can fall victim to a public outcry and lose their appointment. In this specific case, the CPUC has values listed that state, “We provide an open, fair, timely, and inclusive process,” and, “We lead with integrity, take initiative, and inspire a shared vision in the pursuit of the public interest” (www. cpuc. ca. gov). It is very much subject to public opinion.

In the case of CFLC, they took advantage of CPUC’s mission statement and values and successfully implemented a public relations campaign that caused opinion leaders and public opinion to side with them in such an overwhelming way, that the CPUC had to take notice. CFLC was successful in achieving their goal of influencing the CPUC. This case study is an excellent example of the impact alliances and coalitions can have. Compared to Edison on paper, the CFLC did not have a chance of swaying public opinion.

With the strength-in-numbers approach, it was able to implement a sound, strategic and successful public relations campaign. References California Public Utility Commission (2011, July 15). About us. Retrieved from http://www. cpuc. ca. gov/puc/ Johnson, Greg and Bernstein, Leonard (1989, April 14). Broad coalition forged to fight utility merger. Los Angeles Times. Retrieved from http://articles. latimes. com/1989-04-14 Smith, Ronald. D. (2009). Strategic planning for public relations. New York, NY: Routledge.