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Texas Utilities Acquires Lufkin-Conroe Communications Company.

DALLAS--(BUSINESS WIRE)--Aug. 25, 1997--Texas Utilities Company (NYSE:TXU) has entered into a definitive agreement to acquire Lufkin-Conroe Communications Company (LCC), a privately-held local exchange telephone company.

LCC is the parent company of Lufkin-Conroe Telephone Exchange, Inc. and Lufkin-Conroe Telecommunications Corp. and its subsidiaries. LCC is an independent local exchange carrier providing telephone services for almost 100 years to its customers and is the fourth largest telephone company in Texas (28th largest in the nation). LCC has sixteen exchanges that serve approximately 100,000 access lines in the Alto, Conroe and Lufkin areas of Southeast Texas. It also provides access services to a number of interexchange carriers who provide long distance services. LCC owns fiber optic cable systems which it leases to interexchange carriers, provides Internet access, radio communications tower rentals, cellular mobile telephones and radio paging services and private branch exchange (PBX) service to local customers. LCC also provides interexchange long distance service, with the primary focus on business customers.

LCC is experiencing strong customer growth with access line growth for the prior twelve months of approximately 8%. The strongest growth is occurring in the Conroe and Woodlands areas north of Houston, Texas. LCC has revenues of approximately $100 million per year with the majority provided by the local network and has experienced growth, on average, of more than 10% per year over the last five years and over 19% for the prior twelve months. In addition, LCC management has done an excellent job of controlling costs that has directly resulted in LCC earnings growth over the last five years of more than 10%.

The acquisition of LCC expands Texas Utilities' ability to offer retail products and services to customers as well as expanding the Company's customer base. Texas Utilities' largest subsidiary, TU Electric, currently provides electric services to over 40,000 common customers in the Lufkin area.

"We believe the ability to offer a full array of competitive services will be extremely important in attracting and retaining customers in the future," said Erle Nye, chairman and chief executive of Texas Utilities. "While we believe this acquisition offers a number of bundled services advantages, the acquisition price was based solely on the value of the stand alone enterprise and is not dependent on any convergence value," he added.

Under the terms of the agreement, Texas Utilities will acquire LCC for approximately $328 million. The acquisition will be funded with $320 million of Texas Utilities common stock in a stock for stock exchange and the assumption of approximately $8 million of net debt. The equity value is fixed, but shares issued is dependent on the price of Texas Utilities common stock at the time of close. LCC will be leveraged to an appropriate capital structure based on its conservative risk profile and strong cash flows.

The transaction is expected to be essentially non-dilutive (less than 1%) the first year and accretive thereafter. LCC will generate positive cash flows in year one.

LCC will become a wholly-owned subsidiary of Texas Utilities Company. Herb Zureich, executive vice president and general manager of TU Communications will continue to be responsible for the strategic direction, business development, and operations of the Company's telecommunications interests. G.I. Ross, president and chief executive officer of LCC, will continue to have overall responsibility for LCC operations and report to Zureich.

"The management team is very strong and will remain in place. They have developed an operation which has few peers," said Zureich. "They have been providing exemplary service in the Lufkin and Conroe areas for years by building an efficient, state of the art network and staffing it with energetic and highly skilled employees. LCC is actively applying new technologies and developing new services to anticipate competition and facilitate growth. Management is well known and respected and is active in industry and regulatory forums in Texas and nationally," he added.

"We are very excited to become a part of Texas Utilities," said Ross. "TU and LCC share the same values and the commitment to provide high quality, competitive services and to support those services with exceptional customer care. Our alignment with TU will allow LCC to accelerate our growth and our ability to develop and deliver communications services that customers demand," he added.

The transaction is consistent with the Texas Utilities business strategy. That strategy focuses first on growth in existing markets and pursues opportunities to supplement that growth with attractive energy-related business opportunities that will enhance earnings and shareholder value. The transaction expands the company's customer base and ability to deliver essential services in one of the strongest and most economically vibrant and diverse areas of the country.

The transaction requires approval by LCC shareholders, is subject to Hart-Scott-Rodino review and requires FCC approval of the transfer of several licenses held by LCC. The parties expect to conclude the transaction by early 1998.

Texas Utilities Company is an investor-owned holding company for energy service companies engaged in domestic and international electric and natural gas utility services, energy marketing, telecommunications, and other energy-related services.

CONTACT: Texas Utilities Company, Dallas

David Anderson, 214/812-4641


Tim Hogan, 214/812-2756
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Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Business Wire
Date:Aug 25, 1997
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