<PAGE> 1
CURRENT REPORT
ON FORM 8-K
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 11, 1999
Conectiv
(Exact Name of Registrant as Specified in Charter)
Delaware 1-13895 51-0377417
(State of Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
800 King Street, P.O. Box 231
Wilmington, Delaware 19899
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (302) 429-3114
None
(Former Name or Former Address, if Changed since Last Report)
<PAGE> 2
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Litigation
Reform Act") provides a "safe harbor" for forward-looking statements to
encourage such disclosures without the threat of litigation, provided those
statements are identified as forward-looking and are accompanied by meaningful,
cautionary statements identifying important factors that could cause the actual
results to differ materially from those projected in the statement.
Forward-looking statements have been made in this Report. Such statements are
based on beliefs of Conectiv's (the "Company") management ("Management") as well
as assumptions made by and information currently available to Management. When
used herein, the words "will," "anticipate," "estimate," "expect," "believe,"
"objective," and similar expressions are intended to identify forward-looking
statements. In addition to any assumptions and other factors referred to
specifically in connection with such forward-looking statements, factors that
could cause actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following: deregulation of
energy supply and the unbundling of delivery services; an increasingly
competitive marketplace; results of any asset dispositions; sales retention and
growth; federal and state regulatory actions; future litigation results; costs
of construction; operating restrictions; increased costs and construction delays
attributable to environmental regulations; nuclear decommissioning and the
availability of reprocessing and storage facilities for spent nuclear fuel; and
credit market concerns. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The foregoing list of factors pursuant
to the Litigation Reform Act should not be construed as exhaustive or as an
admission regarding the adequacy of disclosures made prior to the effective date
of the Litigation Reform Act.
Item 5. Other Events
Conectiv announced today that, due to changes in the regulatory
environment in the electric utility industry, it is undertaking several
strategic initiatives designed to maximize stockholder value and position
Conectiv for future growth. These initiatives include: (1) a recapitalization of
Conectiv through a share buyback in order to employ a more efficient capital
structure appropriate for a competitive environment; (2) a reduction in the
quarterly dividend on the Company's Common Stock, par value $0.01 per share (the
"Shares"), designed to balance total shareholder return between stock
appreciation and dividend yield (the "Dividend Policy Change"); (3) a
realignment of Conectiv's generation business by pursuing the potential sale of
approximately 2,200 megawatts of nuclear and non-strategic baseload fossil
generation, with safeguards to assure continued energy reliability; (4) a focus
on value creation through growth of Conectiv's regulated electric and gas
delivery business, the energy business and the telecommunications business; and
(5) the implementation of a new productivity improvement and cost reduction
program aimed at positioning the Company to have a more competitive cost
structure without any reduction in quality and service.
Conectiv is offering to purchase up to 14 million Shares (including the
associated preferred stock purchase rights (the "Rights") issued pursuant to the
Rights Agreement, dated as
<PAGE> 3
of April 23, 1998 (the "Rights Agreement"), between the Company and Conectiv
Resource Partners, Inc., as the Rights Agent), at a price not greater than
$25.50 nor less than $23.50 per Share in cash, as specified by tendering
stockholders, upon the terms and subject to the conditions set forth in the
Offer to Purchase and the related Letter of Transmittal (which, as amended from
time to time, together constitute the "Offer"). The Offer to Purchase and
related Letter of Transmittal have been included as Exhibits (a)(1) and (a)(2),
respectively, to the Issuer Tender Offer Statement on Schedule 13E-4 to be filed
on May 11, 1999 by the Company with the Securities and Exchange Commission
("SEC") in connection with the Offer.
The Company will, upon the terms and subject to the conditions of the
Offer, determine a single per Share price (not greater than $25.50 nor less than
$23.50 per Share), net to the seller in cash (the "Purchase Price"), that it
will pay for Shares validly tendered and not withdrawn pursuant to the Offer,
taking into account the number of Shares so tendered and the prices specified by
tendering stockholders. The Company will select the lowest Purchase Price that
will allow it to purchase 14 million Shares (or such lesser number of Shares as
are validly tendered and not withdrawn) at a price not greater than $25.50 nor
less than $23.50 per Share. The Company reserves the right, in its sole
discretion, to purchase more than 14 million Shares pursuant to the Offer. The
Offer, the proration period and withdrawal rights expire at 12:00 Midnight, New
York City time, on Tuesday, June 8, 1999, unless the Company extends the Offer.
Shares tendered pursuant to the Offer may also be withdrawn, unless accepted for
payment by the Company pursuant to the Offer, after 12:00 Midnight, New York
City time, on Wednesday, July 7, 1999.
Although the Company is not offering to purchase shares of its Class A
Common Stock, par value $0.01 per share ("Class A Common Stock"), as a result of
the Offer, holders of Class A Common Stock may elect, in accordance with the
terms of the Restated Certificate of Incorporation of the Company and the Rights
Agreement, to convert each share of Class A Common Stock (and associated
preferred stock purchase rights issued pursuant to the Rights Agreement) into
1.59997 Shares (and 1.59997 associated Rights) and to tender such Shares (and
associated Rights) pursuant to the Offer, provided, however, that any such
election and conversion will be effective only with respect to such Shares (and
associated Rights) as are actually accepted for purchase by the Company pursuant
to the Offer.
Assuming that the Company purchases 14 million Shares pursuant to the
Offer at the maximum specified purchase price of $25.50 per Share, the Company
expects the maximum aggregate cost, including all fees and expenses applicable
to the Offer, to be approximately $360 million. The Company anticipates that
substantially all of the funds necessary to pay such amounts will be financed
with proceeds of the issuance of $250 million of medium term notes (the "Note
Offering") and the balance through the issuance of commercial paper borrowings
supported by the Credit Agreement dated as of February 4, 1998 and the Credit
Agreement dated as of February 19, 1999, in each case, among the Company and the
several lenders party to each such agreement. The Company intends to file
Amendment No. 1 to its Registration Statement on Form S-3 (file No. 33-72251)
with respect to the Note Offering with the SEC on May 11, 1999.
<PAGE> 4
Conectiv's Board of Directors intends to reduce per share dividends on
the Shares to an amount equal to 40% to 60% of the Company's earnings per Share,
which is expected to result in a quarterly dividend of $0.22 per Share as
compared to the previous quarterly dividend level of $0.385 per Share, subject
to declaration by the Company's Board of Directors and evaluation from time to
time based on the results of operations, financial condition, capital
requirements and other relevant considerations. The Company's Board of Directors
intends that the quarterly dividend on shares of Class A Common Stock will
remain $0.80 per share ($3.20 annualized rate) until March 31, 2001, subject to,
among other things, declaration by Conectiv's Board of Directors and the
obligations of the Board of Directors to consider the financial condition and
regulatory environment of the Company and the results of its operations.
The summary unaudited consolidated pro forma financial information,
included as Exhibit 99.1 hereto, and incorporated by reference herein, gives
effect to the purchase of Shares pursuant to the Offer, including the related
incurrence of indebtedness, and the Dividend Policy Change, based on certain
assumptions described therein and in the related notes. Such summary unaudited
consolidated pro forma financial information does not purport to be indicative
of the operating results that would actually have been obtained, or operating
results that may be obtained in the future, or the financial position that would
have resulted had the purchase of the Shares pursuant to the Offer, including
the related incurrence of indebtedness, and the Dividend Policy Change been
completed at the dates indicated therein.
On May 11, 1999, Conectiv issued a press release regarding, among other
things, the Offer and the Dividend Policy Change. A copy of Conectiv's press
release dated May 11, 1999 has been filed with this Current Report on Form 8-K
as Exhibit 99.2 and is incorporated by reference herein.
Item 7. Pro Forma Financial Statements and Exhibits.
(a) Not applicable
(b) Not applicable
(c) Exhibits
99.1 Summary Unaudited Consolidated Pro Forma Financial
Statements.
99.2 Press Release issued by the Company dated May 11, 1999.
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONECTIV
Date: May 11, 1999 By: /s/ John C. van Roden
________________________
John C. van Roden
Senior Vice President and
Chief Financial Officer
<PAGE> 6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
99.1 Summary Unaudited Consolidated Pro Forma
Financial Statements.
99.2 Press Release issued by the Company dated May 11, 1999.
<PAGE> 1
EXHIBIT 99.1
Summary Unaudited Consolidated Pro Forma Financial Statements. The
following summary unaudited consolidated pro forma financial statements give
effect to the purchase of shares of Common Stock, par value $0.01 per share
("Shares"), of Conectiv, a Delaware corporation (the "Company"), pursuant to the
Company's offer to purchase 14 million Shares at a price not greater than $25.50
nor less than $23.50 per Share in cash (the "Offer"), including the related
incurrence of indebtedness, and the reduction in the dividend on the Shares,
based on certain assumptions described below and in the related Notes below. The
Summary Unaudited Consolidated Pro Forma Balance Sheets give effect to the
purchase of Shares pursuant to the Offer, including the related incurrence of
indebtedness, as though such events occurred as of the respective dates of such
balance sheets. The Summary Unaudited Consolidated Pro Forma Statements of
Income for the three-month period ended March 31, 1999 and for the year ended
December 31, 1998 give effect to the purchase of Shares pursuant to the Offer,
including the related incurrence of indebtedness, and the reduction in the
dividend on the Shares as though such events occurred on January 1, 1999 and
March 1, 1998, respectively. The summary unaudited consolidated pro forma
financial statements should be read in conjunction with the historical
consolidated financial information of the Company and does not purport to be
indicative of the operating results that would actually have been obtained, or
operating results that may be obtained in the future, or the financial position
that would have resulted had the purchase of the Shares pursuant to the Offer,
including the related incurrence of indebtedness, and the reduction in the
dividend on the Shares been completed at the dates indicated.
The pro forma adjustments assume the following:
(A) The issuance by the Company of $357.0 million of debt at an average
interest rate of 7%, including (a) $250.0 million of medium term notes
("Notes") having an average life of 5 years, and (b) $107.0 million of
commercial paper; and the payment by the Company of $1.7 million in
fees and expenses relating to the issuance of the Notes.
(B) The realization of an income tax benefit resulting from interest
expense on the debt and amortization of debt issuance expenses, based
on an effective income tax rate of 40.85%.
(C) The use by the Company of proceeds from the debt issuance to purchase
14,000,000 Shares at $25 1/2 per Share in the Offer, including Shares
purchased as the result of the conversion of shares of Class A Common
Stock; and the payment by the Company of $3.0 million of related Offer
expenses.
(D) The payment of dividends on Shares at $0.22 per Share per quarter, or
$0.88 per Share per year.
(E) A decrease in the number of outstanding shares of Class A Common Stock
due to the conversion of shares of Class A Common Stock to Shares and
purchase of Shares by the Company in the Offer, assuming each share of
Class A Common Stock was converted to 1.59997 Shares. A reduction in
the Class A Common Stock's percentage of earnings from the Atlantic
Utility Group (as defined in the Company's Restated Certificate of
Incorporation) that exceed $40.0 million per year from 30% to 27.2% is
assumed for the three months ended March 31, 1999 and 27.3% for the
twelve months ended December 31, 1998.
(F) The number of Shares purchased from holders of Class A Common Stock who
elect to convert shares of Class A Common Stock to Shares was assumed
to be equal to the quotient of (a) the number of shares of Class A
Common Stock outstanding multiplied by the Class A Common Stock
conversion ratio, divided by (b) (i) the number of Shares outstanding
as of the date Shares are assumed to be purchased under the Offer, and
(ii) the number of shares of Class A Common Stock outstanding
multiplied by the Class A Common Stock conversion ratio, multiplied by
(c) the 14,000,000 Shares purchased in the Offer. The balance of the
14,000,000 Shares purchased is assumed to be from holders of Shares
other than the Shares attributed to the conversion of Class A Common
Stock.
1
<PAGE> 2
CONECTIV AND SUBSIDIARIES
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets............................................ $ 765,956 $ (4,700)(1) $ 761,256
Investments............................................... 405,653 -- 405,653
Property, plant and equipment............................. 4,475,390 -- 4,475,390
Deferred charges and other assets......................... 487,584 1,700(2) 489,284
---------- -------- ----------
Total assets.............................................. $6,134,583 $ (3,000) $6,131,583
========== ======== ==========
CAPITALIZATION AND LIABILITIES
Current liabilities....................................... $1,159,529 $107,000(3) $1,266,529
Deferred credits and other liabilities.................... 1,141,330 -- 1,141,330
Capitalization............................................ --
Common stockholders' equity............................. 1,848,210 (360,000)(4) 1,488,210
Preferred stock of subsidiaries......................... 284,883 -- 284,883
Long-term debt.......................................... 1,700,631 250,000(5) 1,950,631
---------- -------- ----------
3,833,724 (110,000) 3,723,724
---------- -------- ----------
Total capitalization and liabilities...................... $6,134,583 $ (3,000) $6,131,583
========== ======== ==========
Common shares outstanding (000)
Shares.................................................. 100,589 (12,677)(6) 87,912
Class A common stock.................................... 6,561 (827)(7) 5,734
Book value per common share............................... $ 17.25 (8) $ 15.89
</TABLE>
The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements
are an integral part of this statement.
2
<PAGE> 3
CONECTIV AND SUBSIDIARIES
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Operating revenues................................... $946,585 $946,585
Operating expenses................................... 844,047 844,047
-------- --------
Operating income..................................... 102,538 102,538
-------- --------
Other income......................................... 23,113 23,113
-------- --------
Interest expense..................................... 38,694 6,333(9) 45,027
-------- -------- --------
Preferred stock dividend requirements of
subsidiaries....................................... 4,948 4,948
-------- --------
Income before income taxes........................... 82,009 (6,333) 75,676
-------- -------- --------
Income taxes......................................... 33,314 (2,587)(10) 30,727
-------- -------- --------
Net income........................................... $ 48,695 $ (3,746) $ 44,949
======== ======== ========
Earnings applicable to common stock
Shares............................................. $ 47,358 $ (3,621)(11) $ 43,737
Class A common stock............................... 1,337 (125)(11)(b) 1,212
-------- -------- --------
$ 48,695 $ (3,746) $ 44,949
======== ======== ========
Average shares outstanding (000)
Shares............................................. 100,532 (12,677)(12) 87,855
-------- -------- --------
Class A common stock............................... 6,561 (827)(13) 5,734
-------- -------- --------
Earnings per average share -- basic and diluted
Shares............................................. $ 0.47 $ 0.03(14) $ 0.50
-------- -------- --------
Class A common stock............................... $ 0.20 $ 0.01(14) $ 0.21
-------- -------- --------
Dividends declared per share
Shares............................................. $ 0.385 $ (0.165)(15) $ 0.22
-------- -------- --------
Class A common stock............................... $ 0.80 $ -- $ 0.80
-------- -------- --------
Ratio of earnings to fixed charges(a)................ 2.71 (16) 2.40
</TABLE>
- ---------------
(a) For the twelve months ended March 31, 1999.
The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements
are an integral part of this statement.
3
<PAGE> 4
CONECTIV AND SUBSIDIARIES
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
AS OF DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets....................................... $ 723,872 $ (4,700)(1) $ 719,172
Investments.......................................... 387,678 -- 387,678
Property, plant and equipment........................ 4,480,387 -- 4,480,387
Deferred charges and other assets.................... 495,737 1,700(2) 497,437
---------- --------- ----------
Total assets......................................... $6,087,674 $ (3,000) $6,084,674
========== ========= ==========
CAPITALIZATION AND LIABILITIES
Current liabilities.................................. $1,081,791 $ 107,000(3) $1,188,791
Deferred credits and other liabilities............... 1,131,277 -- 1,131,277
Capitalization
Common stockholders' equity........................ 1,843,161 (360,000)(4) 1,483,161
Preferred stock of subsidiaries.................... 284,883 -- 284,883
Long-term debt..................................... 1,746,562 250,000(5) 1,996,562
---------- --------- ----------
3,874,606 (110,000) 3,764,606
---------- --------- ----------
Total capitalization and liabilities................. $6,087,674 $ (3,000) $6,084,674
========== ========= ==========
Common shares outstanding (000)
Shares............................................. 100,517 (12,682)(6) 87,835
Class A common stock............................... 6,561 (824)(7) 5,737
Book value per common share.......................... $ 17.21 --(8) $ 15.85
</TABLE>
The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements
are an integral part of this statement.
4
<PAGE> 5
CONECTIV AND SUBSIDIARIES
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Operating revenues........................... $3,071,606 $3,071,606
Operating expenses........................... 2,684,691 2,684,691
---------- ----------
Operating income............................. 386,915 386,915
---------- ----------
Other income................................. 36,860 36,860
---------- ----------
Interest expense............................. 149,431 $ 21,108(17) 170,539
---------- -------- ----------
Preferred stock dividend requirements of
subsidiaries............................... 15,326 15,326
---------- ----------
Income before income taxes................... 259,018 (21,108) 237,910
---------- -------- ----------
Income taxes................................. 105,817 (8,623)(10) 97,194
---------- -------- ----------
Net income................................... $ 153,201 $(12,485) $ 140,716
========== ======== ==========
Earnings applicable to common stock
Shares..................................... $ 141,292 $(11,413)(18) $ 129,879
Class A common stock....................... 11,909 (1,072)(18)(b) 10,837
---------- -------- ----------
$ 153,201 $(12,485) $ 140,716
========== ======== ==========
Average shares outstanding (000)
Shares..................................... 94,338 (10,568)(12) 83,770
---------- -------- ----------
Class A common stock....................... 6,561 (824)(13) 5,737
---------- -------- ----------
Earnings per average share-basic and diluted
Shares..................................... $ 1.50 $ 0.05(14) $ 1.55
---------- -------- ----------
Class A common stock....................... $ 1.82 $ 0.07(14) $ 1.89
---------- -------- ----------
Dividends declared per share
Shares..................................... $ 1.54 $ (0.66)(15) $ 0.88
---------- -------- ----------
Class A common stock....................... $ 3.20 $ -- $ 3.20
---------- -------- ----------
Ratio of earnings to fixed charges........... 2.38 (16) 2.09
</TABLE>
The Notes to Summary Unaudited Consolidated Pro Forma Financial Statements are
an integral part of this statement.
5
<PAGE> 6
NOTES TO SUMMARY UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C> <C>
(1) Represents the effects on cash of the following:
(a) Proceeds from issuance of debt: $250 million of Notes and
$107 million of commercial paper. $ 357,000
(b) Debt issuance costs paid. (1,700)
(c) 14,000,000 Shares redeemed at $25 1/2 per Share. (357,000)
(d) Represents assumed costs of Offer. (3,000)
---------
$ (4,700)
=========
(2) Represents assumed costs of issuing $250 million of Notes with
a five-year average life.
(3) Represents assumed amount of funds used to purchase
Shares which are raised from issuing commercial
paper.
(4) (a) 14,000,000 Shares are assumed to be repurchased at $25 1/2
per Share. $(357,000)
(b) Represents assumed costs of Offer. (3,000)
---------
$(360,000)
=========
(5) Represents the assumed amount of funds used to purchase Shares
which are raised from issuing Notes with a five-year average
life.
(6) Represents the assumed purchase of Shares excluding the Shares
purchased due to the conversion of Class A Common Stock.
(7) Represents the assumed number of shares of Class A Common Stock
which are converted to Shares.
(8) The book value per common share is equal to total common
stockholders' equity divided by the number of total Shares and
shares of Class A Common Stock outstanding.
(9) (a) Quarterly interest expense on $357 million of 7.0% debt
issued on January 1, 1999. $ 6,248
(b) Quarterly amortization of the assumed debt issuance costs
of $1.7 million amortized over the five-year average life
of the Notes. 85
---------
$ 6,333
=========
(10) Income tax benefit of debt interest expense and amortization
of debt issuance expenses based on an effective income tax
rate of 40.85%.
(11) (a) Represents the pro forma effect on net income of the debt
issuance. $ (3,746)
(b) Represents assumed increase in earnings available for
Shares, (and decrease in earnings available for Class A
Common Stock) due to the decrease in percentage allocable
to shares of Class A Common Stock of earnings from the
Atlantic Utility Group in excess of $40 million per year
from 30% to 27.2%, due to fewer shares of Class A Common
Stock outstanding. 125
---------
$ (3,621)
=========
(12) Represents the decrease in the number of average Shares
outstanding due to the purchase of Shares in the Offer other
than Shares attributed to conversion of Class A Common Stock.
(13) Represents the decrease in the number of average shares of
Class A Common Stock outstanding due to the shares of Class A
Common Stock which are converted to Shares in the Offer.
(14) Pro forma earnings per average share were computed based on
pro forma earnings and pro forma average shares outstanding.
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
(15) The quarterly dividend rate is assumed to decrease from $0.385
per Share to $0.22 per Share. The annual dividend rate is
assumed to decrease from $1.54 per Share to $0.88 per Share.
(16) The pro forma ratio of earnings to fixed charges is based on
the historical ratio of earnings to fixed charges adjusted for
the pro forma increase in annual interest expense.
(17) (a) Ten-twelfths of annual interest expense on $357 million of
7.0% debt assumed to have been issued on March 1, 1998,
the Merger date. $ 20,825
(b) Ten-twelfths of annual amortization of the assumed debt
issuance costs of $1.7 million amortized over the
five-year average life of the debt. 283
---------
$ 21,108
=========
(18) (a) Represents the pro forma effect on net income of the debt
issuance. $ (12,485)
(b) Represents assumed increase in earnings available for
Shares (and decrease in earnings available for Class A
Common Stock) due to the decrease in percentage allocable
to shares of Class A Common Stock of earnings from the
Atlantic Utility Group in excess of $40 million per year
from 30% to 27.3%, due to fewer shares of Class A Common
Stock outstanding. 1,072
---------
$ (11,413)
=========
</TABLE>
7
<PAGE> 1
Exhibit 99.2
NEWS RELEASE
[LOGO]
Contact: Investor Relations, Bob Marshall (302) 429-3114
Public Affairs, Mary Rucci (302) 429-3334
CONECTIV ANNOUNCES STRATEGIC AND FINANCIAL INITIATIVES FOR GROWTH
SHARE BUYBACK, DIVIDEND REDUCTION, SALE OF GENERATING ASSETS,
GROWTH IN TELECOMMUNICATIONS AND UTILITY
BUSINESSES, MAJOR COST REDUCTION EFFORTS
WILMINGTON, May 11, 1999 -- With its major regulatory issues becoming more
certain, Conectiv (NYSE:CIV and CIV.A) today announced several strategic
initiatives designed to increase shareholder value and position Conectiv for
future growth. These initiatives continue to expand Conectiv's focus on
achieving superior total shareholder returns by providing improved earnings
growth. The growth focus is in Conectiv's utility transmission and distribution
business, investments in its telecommunications business and higher returns on
the strategic energy business.
The initiatives include:
- - A recapitalization of Conectiv through a buyback of approximately 14
percent of outstanding common stock in order to employ a more efficient
capital structure appropriate for a competitive environment;
- - An intention by the Board of Directors to reduce the quarterly CIV common
stock dividend from $0.385 to $0.22, to balance total shareholder return
between stock appreciation and dividend yield. The dividend policy for
Class A Common Stock remains unchanged, currently a quarterly dividend of
$.80 ($3.20 annualized) per share;
- - A realignment of Conectiv's generation business by pursuing the potential
sale of approximately 2,200 megawatts of nuclear and non-strategic baseload
fossil generation, with safeguards to assure continued energy reliability;
(more)
<PAGE> 2
- - A focus on value creation through growth of Conectiv's regulated electric
and gas delivery business, its energy business and telecommunications
business;
- - The implementation of a new productivity improvement and cost reduction
program aimed at positioning the company to have a more competitive cost
structure without any reduction in quality and service.
"This accelerates Conectiv's progression toward being a leading provider of
vital services to customers in an expanded regional market. The first step of
this journey was the merger of Delmarva Power and Atlantic Energy to create
Conectiv. The second was the deregulation of the energy markets in the areas we
serve. Third, we created a number of new businesses. This is the next step in
the transformation of Conectiv from a regulated to a highly competitive
enterprise," explained Howard Cosgrove, Conectiv Chairman, CEO and President.
DIVIDEND POLICY AND RECAPITALIZATION
In order to improve Conectiv's financial flexibility and position it as a
growth-oriented investment, Conectiv's Board of Directors intends to reduce its
CIV common stock dividend and recapitalize its balance sheet. The dividend
policy remains unchanged for the Class A common stock.
The Board intends to reduce the CIV common stock dividend from $1.54 to $0.88,
effective with the expected declaration of the next quarterly dividend, on June
29, 1999.
According to John van Roden, Conectiv's CFO, "The company is targeting a payout
ratio of 40% to 60%. This is more consistent with companies operating in a
competitive environment, and transitions Conectiv away from the traditionally
higher payout ratios typical of the regulated utility industry."
The recapitalization will be accomplished through a "Dutch Auction" self-tender
offer, beginning May 11, 1999 and ending June 8, 1999. Conectiv plans to buy
back up to 14 million of its outstanding CIV common shares. Shareholders will
have the opportunity to tender their shares within a price range established by
the Company of $23.50 to $25.50.
The recapitalization will not affect the capital structures of Conectiv's wholly
owned subsidiaries, Delmarva Power & Light Company and Atlantic City Electric
Company. The transaction will be financed through the issuance of long- and
short-term debt of Conectiv, with the consolidated credit ratios expected to
return to current levels within 2-3 years, as the result of the lower annual
dividend payout and anticipated receipt of cash from asset sales.
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Van Roden emphasized, "We are positioning Conectiv's stock for market value
growth. With our solid earnings prospects, and the effect of reduced shares
outstanding, Conectiv is positioned to achieve improved growth in earnings per
share."
Cosgrove further noted "We believe our tender offer will allow those
shareholders who desire a more income-oriented investment to exit on favorable
terms. On the other hand, we believe that shareholders who retain their shares
will benefit from owning a greater interest in a highly competitive company with
outstanding growth opportunities."
SALES OF GENERATING PLANTS
In response to changes in the legal and regulatory environment in the states
that it serves, Conectiv plans to sell approximately 2,200 megawatts of its
nuclear and non-strategic baseload fossil generation assets.
Cosgrove explained, "This sale will accomplish two main goals. First, it will
raise case for debt repayment and new investments more likely to fulfill our
corporate vision. Second, we will realize gains that offset our stranded costs
from generation plants. Conectiv intends to retain certain generation plants
that it considers to be strategic to its energy business and assure reliability
for its customers throughout the evolution of the competitive electric supply
markets.
"This approach reflects our belief that we must concentrate on becoming a
provider of multiple vital services under a common brand, rather than use our
generation resources to compete in the commodity wholesale business," Cosgrove
said.
Conectiv's generating asset divestiture is expected to occur upon acceptable
terms by midyear 2000. Conectiv will work with its affected employees to provide
as many opportunities as possible.
STRATEGIC FOCUS
The foundation of Conectiv's growth opportunities is its energy,
telecommunications and regulated electric and gas delivery. These areas comprise
the company's vital services focus and allow Conectiv to concentrate on
deepening customer relationships within its growing region.
The energy business will be centered on 2,000 megawatts of flexible, low-cost
generation that back Conectiv's merchant capabilities. Conectiv also will focus
resources on growing its facilities-based telecommunications business, taking
advantage of the many high growth opportunities including internet and high
speed DSL (digital subscriber line) that will be available to customers later
this year.
"Conectiv Communications today has more than 50,000 access lines and has
achieved dramatic growth in a short time. We are excited about continuing that
growth," stated Cosgrove. "At the same time, the regulated electric and gas
delivery business will provide continued strong cash flows and will be the basis
for expanded vital services growth beyond regulated delivery. In conjunction
with our delivery business,
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Conectiv will continue to be a major provider of energy throughout the
Mid-Atlantic region."
PRODUCTIVITY IMPROVEMENT AND COST REDUCTIONS
Conectiv has simultaneously initiated a comprehensive cost improvement program
with a renewed focus on improving productivity and continuing merger synergies
in its core business processes with a goal of $25 million in cost reductions
over the next 12 to 18 months. Over the longer term, the company plans to review
all business processes and expenses to accelerate process improvements and
achieve cost productivity that can be sustained.
"In order to compete in a deregulated environment, we must continuously reduce
costs and improve productivity without any reduction in quality and service or
impact to our customers as we continue to grow. This type of effort and
coordination will enable Conectiv to develop sustainable benefits in a
competitive marketplace," Cosgrove stated.
SUMMARY
Van Roden summarized the goals of the strategic and financial initiatives
announced today by saying that they "should provide Conectiv with sufficient
funds to invest in the areas of strategic focus that provide higher return on
equity and earnings accretion, while maintaining a prudent balance between debt
and equity in our capital structure. This action also should preserve the
financial flexibility necessary to accommodate future cash needs and focus on
improving total shareholder return."
Cosgrove added, "Today's announcement is the next step in Conectiv's
transformation from a regulated public utility to a regional provider of vital
services. It is a course of action that is consistent with both our strategic
focus and is in the best interests of our shareholders and customers. The
current repayment of capital to shareholders is a tangible expression of the
Board's and management's confidence in the Company and provides greater
assurance to shareholders that strategic undertakings will be value-enhancing."
Conectiv is a regional provider of vital services, emphasizing electric and gas
delivery, energy and telecommunications.
************************************
The dealer manager for the share repurchase offer is The Blackstone Group, L.P.
The information agent is D.F. King & Co., Inc. Copies of the Offer to Purchase
and related materials, dated May 11, 1999, will be mailed to all Conectiv
shareholders. The terms of the offer and procedures for tendering are explained
in detail in these materials. Shareholders are urged to carefully read these
materials prior to making any decision with respect to the offer. Additional
copies of the material can be obtained from the information agent by calling
1-800-207-3156.
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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Litigation
Reform Act") provides a "safe harbor" for forward-looking statements to
encourage such disclosures without the threat of litigation, provided those
statements are identified as forward-looking and are accompanied by meaningful,
cautionary statements identifying important factors that could cause the actual
results to differ materially from those projected in the statement.
Forward-looking statements have been made in this Press Release. Such statements
are based on beliefs of the Company's management ("Management") as well as
assumptions made by and information currently available to Management. When used
herein, the words "will," "anticipate," "estimate," "expect," "objective," and
similar expressions are intended to identify forward-looking statements. In
addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements, factors that could cause actual
results to differ materially from those contemplated in any forward-looking
statements include, among others, the following: deregulation of energy supply
and the unbundling of delivery services; an increasingly competitive
marketplace; results of any asset dispositions; sales retention and growth;
federal and state regulatory actions; future litigation results; costs of
construction; operating restrictions; increased costs and construction delays
attributable to environmental regulations; nuclear decommissioning and the
availability of reprocessing and storage facilities for spent nuclear fuel; and
credit market concerns. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The foregoing list of factors pursuant
to the Litigation Reform Act should not be construed as exhaustive or as
admission regarding the adequacy of disclosures made by the Company prior to the
effective date of the Litigation Reform Act.
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