BGE and PEPCO combine to form $15 billion company; Largest combination of two electric utility companies to date.ANNAPOLIS, Md.--(BUSINESS WIRE)--Sept. 25, 1995--In a joint statement today, Christian H. Poindexter, Chairman of the Board and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Baltimore Gas and Electric Company (NYSE NYSE See: New York Stock Exchange : BGE BGE Baltimore Gas and Electric BGE Big Green Egg (grill) BGE Beyond Good and Evil (Nietzsche) BGE Busch Gardens Europe BGE Branch If Greater or Equal BGE Bacterial Growth Efficiency ), and Edward F. Mitchell, Chairman of the Board and CEO of Potomac Electric Potomac Electric corporation is a US manufacturer and repair provider of servo motors and servo drives. Potomac Electric was founded in 1992 by design and manufacturing engineers from Westamp, Baldor, EG&G Tourque Systems. Power Company (NYSE: POM), announced that their respective Boards of Directors have unanimously approved a strategic business combination of the two companies. This merger will create a regional energy company with customers in Maryland and Washington, D.C. The new company will be one of the ten largest electric utility companies in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , serving a population of 4.5 million with 1.8 million electric customers and over 530,000 gas customers. The transaction will create a new company with assets exceeding $15 billion and annual revenues of approximately $5 billion. Mr. Poindexter, who will serve as CEO of the new combined company, stated that "with the challenges facing the energy industry today, this combination creates a larger, stronger company that allows us to compete in a way neither of our companies could do alone. We will be able to provide service at a lower cost than would otherwise be possible." Mr. Mitchell, who will serve as Chairman of the Board of the new company, added "this merger combines two financially strong, low-cost energy providers with common values and strategies and highly compatible operations and management. In this competitive world the low-cost producers will be the winners. We intend to be a winner." The agreement calls for shareholders of Baltimore Gas and Electric Company to receive one share of stock in the new company for each share of BGE common stock owned. Holders of Potomac Electric Power Company common stock will receive a 0.997 share of stock in the new company for each share of PEPCO PEPCO Potomac Electric Power Company (Washington, DC, USA) PEPCO Pakistan Electric Power Company PEPCO Professional Electric Products Company stock owned. This exchange ratio approximates a 20% premium to the average PEPCO trading price Trading price The price at which a security is currently selling. over the previous week's level. BGE and PEPCO currently have 148 million and 118 million common shares outstanding, respectively. DIVIDEND POLICY The new company will adopt BGE's dividend policy. The annual dividend at the expected 1997 closing date will be $1.67 per share. This compares to BGE's current $1.56 dividend and PEPCO's current annual dividend of $1.66. The new company's dividend strategy is consistent with BGE's current dividend payout ratio Dividend Payout Ratio The percentage of earnings paid to shareholders in dividends. Calculated as: goal of approximately 70%. The dividend at closing will be 7% greater than BGE's current dividend. Both companies' shareholders are expected to benefit over time from a strategy of dividend growth. NEW COMPANY MANAGEMENT The new company's management team will combine the talents of seasoned executives from both companies. Mr. Mitchell, PEPCO's Chairman and CEO, will be Chairman of the new company's Board of Directors following the completion of the merger. Mr. Poindexter, BGE's Chairman and CEO, will be the CEO of the new company and will succeed Mr. Mitchell as Chairman of the Board one year after the merger takes place. BGE's President, Edward A. Crooke, will be Vice Chairman of the new company and will be Chairman of the Board of non-regulated subsidiaries. Mr. Crooke will also be responsible for the new company's strategic planning Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. efforts and new business initiatives. John M. Derrick, Jr., PEPCO's President, will be President and COO of the new company and will be responsible for the day-to-day operations of the company's utility business. The new company's Board of Directors will consist of 16 members, with 9 being appointed from BGE's current Board and 7 from PEPCO's current Board. NEW COMPANY STRUCTURE A name will be selected for the new company in the near future. The new company will be structured as a single utility company. The non-utility operations of both companies will be combined, as appropriate, as subsidiaries of the new company. This transaction is expected to qualify as a pooling of interests Pooling of Interests An accounting method, used in mergers and acquisitions, where the balance sheet items of the two companies are simply added together. Notes: The opposite of pooling of interests is the purchase acquisition method. and as a tax-free exchange tax-free exchange An exchange of assets between taxpayers in which any gain or loss is not recognized in the period during which the exchange takes place. Rather, taxpayers are required to adjust the basis of assets exchanged. of shares for the holders of each company's common stock. BGE and PEPCO have agreed that the new company will be headquartered between Baltimore and Washington in the Annapolis, Maryland “Annapolis” redirects here. For other uses, see Annapolis (disambiguation). Annapolis is a city in the United States of America with a population of 36,408 (July 2006 est.), the capital of the State of Maryland and the county seat of Anne Arundel County. area, and that the new company will continue to maintain a significant presence in both Baltimore and Washington. EXPECTED COMBINATION SAVINGS Savings from the combined utility systems are expected to be substantial, approximating $1.3 billion over a ten-year period. These savings will be accomplished through the elimination of duplicate support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services and field operations, economies of centralized purchasing and the reduction of corporate expenses. Synergies will be achieved by combining the two utility systems in an integrated, non-holding company structure and will be enhanced by the contiguous nature of the two systems. Opportunities will be created through enhanced transmission interconnections. The expected elimination of duplicate positions will result in reductions in the total combined workforce of approximately 10%. Additional savings may be achieved over time from combining the companies' non-regulated operations as well. EARNINGS IMPACT The combination should result in little or no earnings dilution in the first year of operations. Earnings are expected to be positively impacted thereafter as synergies are realized. REQUIRED APPROVALS The Merger Agreement is subject to the approval by shareholders of both companies and certain regulatory agencies including: o The Federal Energy Regulatory Commission The Federal Energy Regulatory Commission (FERC) is the United States federal agency with jurisdiction over electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates. o The Public Service Commissions of Maryland and the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). o The Nuclear Regulatory Commission Nuclear Regulatory Commission (NRC), an independent U.S. government commission, created by the Energy Reorganization Act of 1974 and charged with licensing and regulating civilian use of nuclear energy to protect the public and the environment. o The Securities & Exchange Commission All required approvals are expected to be completed by the early part of 1997. Shareholder approval will be sought in early 1996. KEY REASONS FOR THE COMBINATION Mr. Derrick, PEPCO's President, stated that "the combination of the transmission and distribution systems provides more options to meet future generation needs." In addition, the companies presented the following key reasons for the combination: o It creates additional shareholder value through increased efficiencies and reduced costs resulting in a financially stronger and more competitive company. o It creates a larger, stronger company well-positioned to prosper in an increasingly competitive environment. o It combines two of the lower-cost energy companies in the Mid-Atlantic area having no "stranded" high-cost generating plants. o Customers will benefit from reduced costs of the combined company which will keep rates low into the future. o The new company will be well-positioned to take advantage of future strategic opportunities as competition intensifies. o The combination of the two companies' diversified operations will provide the financial and management resources necessary to succeed in a changing business environment. DESCRIPTION OF COMPANIES BGE is an investor-owned company that combines its core utility business with diversified non-utility operations. Founded in 1816, BGE is the nation's first gas utility and one of its earliest electric utilities, with a tradition of superior, low-cost service and reliability. With assets of more than $8 billion, BGE serves more than 1 million business and residential electric customers and 530,000 gas customers in an economically diverse 2,300-square- mile area encompassing Baltimore City and all or part of 10 Central Maryland Counties. PEPCO is an investor-owned electric utility, founded in 1896, serving the electricity needs of 1.9 million people in the Washington Metropolitan area The Washington Metropolitan Area, formally known as the Washington-Arlington-Alexandria, DC-VA-MD-WV MSA is a U.S. Metropolitan Statistical Area (MSA) as defined by the United States Office of Management and Budget (OMB) as of November 2004. . PEPCO's 640-square-mile service territory includes the District of Columbia and major portions of Montgomery and Prince George's Counties in Maryland This is a list of the twenty-four counties and county-equivalents in the U.S. state of Maryland. Though an independent city rather than a county, the City of Baltimore is considered the equal of a county for most purposes and is a county-equivalent. . PEPCO also sells electricity at wholesale to Southern Maryland Electric Cooperative, Inc. PEPCO's service territory is unique, with virtually no heavy industry. The Washington Metropolitan area remains one of the nation's major markets with a well-educated and affluent population. -0- Two-Page Fact Sheet to follow. Photographs available through AP Photo Express. -0- BGE - PEPCO Merger Fact Sheet Information As Of December 31, 1994 Unless Otherwise Noted BGE PEPCO COMBINED I. Financial Statement Information: Total Assets $8.1 Billion $7.0 Billion $15.1 Billion 9th Largest Utility Consolidated Revenues $2.8 Billion $2.0 Billion $4.8 Billion II. Common Stock Information: Earnings Per Share $1.93 $1.79 Current Annual Dividend Per Share $1.56 $1.66 $1.67 Current Stock Price as of 9/22/95 $26 1/8 $21 1/2 Current Dividend Yield as of 9/22/95 6.0% 7.7% Current Market-to-Book 142% 140% Common Shares Outstanding 148 million 118 million III. Capital Structure Information: Credit Ratings Sr. Secured Debt A+/A1 A/A A/A As Above A/A Answers All (swapping) A/A Air-to-Air A/A Angle of Attack A/A Acquisition Authority A/A Autoanswer A/A Analysis of Accounts A/A Attack Assessment A/A Analyst-to-Analyst A/A Advice of Allotment 1 Unsecured Debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. A/A2 A-/A2 Preferred Stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. A/"al" A-/"a1" Preference Stock A/"a2" -- Consolidated Capital Structure Short-Term Debt Short-term debt Debt obligations, recorded as current liabilities, requiring payment within the year. 1.0% 4.4% Long-Term Debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. 46.1% 54.2% Preferred/Preference Stock 8.9% 5.0% Common Equity 44.0% 36.4% IV. Service Territory & Customer Information: Service Territory - Electric 2,300 sq. miles 640 sq. miles 2,940 sq. miles - Gas 627 sq. miles -- 627 sq. miles Population - Electric 2,625,000 1,900,000 4,525,000 - Gas 1,980,000 -- 1,980,000 Customers - Electric 1,084,515 672,141 1,756,656 - Gas 537,397 -- 537,397 Total Electric Sales - MWH See watt-hour. 27,454,000 25,546,210 53,000,210 Electric Sales by Customer - Residential 39% 26% 33% - Commercial 45% 46% 45% - Industrial 16% -- 8% - Government -- 19% 9% - Wholesale -- 9% 5% Employees - Utility 7,296 4,524 - Non-Utility 655 37 Total 7,951 4,561 V. Operating Statistics: Total Generating Capability 6,741 6,723 13,464 Generating Capability by Fuel Type Nuclear 25% 0% 12% Coal 39% 45% 42% Oil, Gas & Hydro 26% 46% 36% Interchange & Purchases 10% 9% 10% % Generation by Fuel Type Nuclear 39% 0% 22% Coal 56% 69% 62% Oil, Gas & Hydro 6% 18% 11% Interchange & Purchases -1% 13% 5% CONTACT: Media: Ogilvy Adams & Rinehart Jo-Anne Sinnott, 212/880-5330 Maria Gonzalez (Cellular), 203/554-7491 or Baltimore Gas and Electric Company Arthur J. Slusark, 410/234-7436 or Potomac Electric Power Company Tom Welle, 202/872-2680 |
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