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Fri, Feb 23, 2001 EST
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Pepco to Buy Conectiv for $2.2 Billion
By Christopher Thorne   Associated Press
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WILMINGTON, Del. — Potomac Electric Power Co. is buying Conectiv for $2.2 billion in cash and stock in a deal that would create the largest electric utility in the mid-Atlantic region.

Under the deal announced Monday, the companies would each become subsidiaries of an as yet unnamed holding company serving more than 1.8 million customers in Delaware, Washington, Maryland, New Jersey and Virginia.

Pepco stockholders would own about two-thirds of the combined company, with Conectiv shareholders owning the rest.

In a statement, executives from Pepco and Conectiv said the new company would have enough power-generation capability — between power plants the utilities now own and their existing contracts to buy power — to meet all requirements through 2004.

"This transaction elevates us to the leading position among mid-Altantic electricity delivery companies," said John M. Derrick, Jr., chairman and chief executive of Pepco.

Derrick would be chairman and chief executive of the new holding company which plans to have headquarters in Washington. As a subsidiary, Conectiv would maintain its headquarters in Wilmington.

Howard E. Cosgrove, chairman and chief executive officer of Conectiv, plans to retire at the completion of the merger, which is expected to take 12 months. The deal requires approval from the boards of both companies, as well as state and federal regulators.

The merger is not expected to result in significant layoffs and all union contracts would be honored, Pepco and Conectiv said.

Under the deal, Pepco stockholders will receive one share of the holding company's common stock for each share of Pepco they hold. Conectiv shareholders will have the option to receive either $25 in cash or holding company shares for each of their shares. That represents a 19 percent premium over Conectiv's closing price of $21 a share on Friday on the New York Stock Exchange.

In midday trading Monday, Conectiv was up 70 cents at $21.70 a share while Pepco shares were off 75 cents at $20.60 a share.

A significant portion of the acquisition will be financed through cash on hand including proceeds from Pepco's recently completed sale of power generation assets, as well as external financing.

Pepco also announced Monday that it will reduce its annual dividend to $1.00 per share from $1.66 per share, effective in June. The company said the move was intended to make Pepco's payout ratio comparable to other electric delivery companies and still keep enough cash on hand to pay for growth.

Conectiv, which was created in 1998 by the merger of Delmarva Power & Light Co. and Atlantic Energy Co., has more than 1 million utility customers in Maryland, Delaware, Virginia and New Jersey, and more than 3,400 employees.

Pepco has about 700,000 customers in Washington and Maryland, and employs about 2,600 people.

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