As filed with the Securities and Exchange Commission on August 5, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) July 31, 1998
MARKETSPAN CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
New York
(State or Other Jurisdiction of Incorporation)
1-14161 11-3431358
(Commission File Number) (IRS Employer Identification No.)
175 East Old Country Road, Hicksville, New York 11801
(Address of Principal Executive Offices) (Zip Code)
(516) 755-6650
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Page 1
Exhibit Index on Page 5
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Item 5. Other Events
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On July 31, 1998, MarketSpan Corporation (the "Company") announced that Dr.
William J. Catacosinos had resigned as Chairman and Chief Executive Officer and
as a director, and that the Company's Board of Directors had elected Robert B.
Catell, the Company's President, to succeed Dr. Catacosinos as Chairman and
Chief Executive Officer. Attached hereto as Exhibit 99.1 is the Company's press
release with respect to the foregoing, which is incorporated herein by
reference.
On August 3, 1998, the Company announced that its Board of Directors had
authorized the purchase of up to 10% of the Company's outstanding common stock,
or approximately 15 million shares, through open market purchases. Purchases are
expected to commence following the public release of the Company's historical
and pro forma consolidated condensed financial information for the periods ended
June 30, 1998 and its related required filings with the Securities and Exchange
Commission. Attached hereto as Exhibit 99.2 is the Company's press release with
respect to the foregoing, which is incorporated herein by reference.
On August 3, 1998, following announcement of the Company's open market
purchase program, Mr. Catell and Craig G. Matthews, the Company's Chief
Financial Officer, held a conference call with security analysts regarding the
Company's future and strategy. Attached hereto as Exhibit 99.3 is a copy of Mr.
Catell's prepared remarks for the foregoing conference call, which is
incorporated herein by reference.
On August 4, 1998, the Company announced that its subsidiary, KeySpan
Energy Development Corporation, had joined Duke Energy Corporation and the
Williams Companies in developing the Cross Bay(sm) pipeline, which will
transport gas from existing interstate pipelines in New Jersey to New York City
and Long Island. These existing pipelines, operated by Texas Eastern
Transmission Corporation and Transcontinental Gas Pipe Lines Corporation, are
owned by Duke Energy and Williams, respectively. In the first stage of
development, expected to cost approximately $45 million with KeySpan Energy's
share at $11.3 million, the Cross Bay(sm) group will build new compression
facilities and expand current pipelines to transport an additional 125 million
cubic feet of gas per day to New York City and Long Island. To meet future
regional demand, Cross Bay(sm) may be expanded to carry up to 700 million cubic
feet per day. The new system is scheduled to begin operation in the fourth
quarter of 2000, and the Cross Bay(sm) group expects to file its plans with the
Federal Energy Regulatory Commission in the fourth quarter of 1998. Attached
hereto as Exhibit 99.4 is the Company's press release with respect to the
foregoing, which is incorporated herein by reference.
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The Exhibits incorporated by reference in this Item 5 include
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements reflect numerous
assumptions and involve a number of risks and uncertainties. Among the factors
that could cause actual results to differ materially are: electric load and
customer growth; abnormal weather conditions; available sources and cost of fuel
and generating capacity; the speed and degree to which competition enters the
power generation, wholesale and retail sectors of the electric utility industry;
state and federal regulatory initiatives that increase competition, threaten
cost and investment recovery, and impact rate structures; the ability of the
Company to successfully reduce its cost structure; the degree to which the
Company develops non-regulated business ventures; the economic climate and
growth in the Company's service territories; economies generated by the
combination of the Company's predecessors; inflationary trends and interest
rates; and other risks detailed from time to time in reports and other documents
filed by the Company and its predecessors with the Securities and Exchange
Commission.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a)-(b) Not applicable.
(c) See "Index to Exhibits" on page 5.
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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.
MARKETSPAN CORPORATION
Dated: August 5, 1998 By: /s/ Joseph E. Fontana
---------------------
Name: Joseph E. Fontana
Title: Vice President, Controller
and Chief Accounting Officer
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INDEX TO EXHIBITS
Exhibit No. Exhibit
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99.1 Press Release, dated July 31, 1998.
99.2 Press Release, dated August 3, 1998.
99.3 Prepared remarks for August 3, 1998 conference call.
99.4 Press Release, dated August 4, 1998.
Page 5
Exhibit No. 99.1
Official Press Release of the MarketSpan Board:
MARKETSPAN ANNOUNCES CEO CHANGE
WILLIAM CATACOSINOS RESIGNS; ROBERT CATELL NAMED
July 31, 1998 (Brooklyn, NY) u MARKETSPAN CORPORATION (NYSE:MN) announced
today that Dr. William J. Catacosinos has resigned as Chairman and Chief
Executive Officer and that Robert B. Catell, the company's President, would
become Chairman and CEO. These changes were effective immediately.
In accepting Dr. Catacosinos' resignation, the Board acknowledged his
contributions to LILCO, MarketSpan's predecessor company, over the past 14
years. The Board also expressed confidence in Bob Catell's leadership and in
MarketSpan's ability to build confidence among all of the company's
stakeholders.
Robert Catell said, "Our focus and intent is to move ahead strongly in
serving our customers. We have the people, the resources, and the will to
maximize shareholder value, deliver superior services to customers, and provide
opportunities for employees."
Dr. Catacosinos said, "I leave with a sense of accomplishment in
transforming LILCO from a deeply troubled utility into a customer focused
company with a clean balance sheet. For these accomplishments, I am proud to
have been associated with the LILCO management team and its dedicated workforce.
I am confident that the new MarketSpan leadership will successfully serve all
parties."
Before joining MarketSpan, Mr. Catell, 61, was Chairman, President and
Chief Executive Officer of KeySpan Energy Corporation, formed in 1997 as the
parent company of Brooklyn Union Gas Co., which combined with segments of LILCO
to form MarketSpan. Mr. Catell joined Brooklyn Union Gas in 1958 after receiving
both his bachelor's and master's degrees in mechanical engineering from City
College of New York. He became an officer of Brooklyn Union Gas in 1974 and
served as President and Chief Executive from 1991.
Exhibit No. 99.2
MARKETSPAN ANNOUNCES STOCK BUY BACK PLAN OF APPROXIMATELY
10 PERCENT OF OUTSTANDING SHARES
(Brooklyn and Hicksville, New York, August 3, 1998)- MarketSpan Corporation
(NYSE: MN) today announced that the Board of Directors has authorized the
purchase of up to 10 percent of the Company's outstanding common stock, or
approximately 15 million shares, through open market purchases. MarketSpan
currently has approximately 158 million shares outstanding.
Robert Catell, chairman and chief executive officer of MarketSpan said, "The
Board believes that the Company's common stock price does not accurately reflect
the value of MarketSpan's current business and future prospects. Our decision to
begin a stock repurchase program reinforces my and the Board's commitment to
enhancing long-term shareholder value for MarketSpan's owners. The purchases
will begin August 13, 1998 and the Board will consider additional purchases once
this program is fulfilled."
MarketSpan, headquartered in Hicksville and Brooklyn, New York, serves more than
1.5 million natural gas customers from Staten Island to Montauk Point. The
company operates five electric generating plants on Long Island and manages the
transmission and distribution of electricity to more than one million electric
customers in Nassau and Suffolk Counties and the Rockaway Peninsula of Queens
County under a contract with the Long Island Power Authority. The Company also
owns KeySpan's unregulated subsidiaries and has investment in natural gas
ownership in Houston Exploration Company (NYSE: THX).
Exhibit 99.3
SCRIPT FOR 8-3-98 ANALYST CALL
Good morning:
I would like to thank you for joining us this morning to discuss the future of
MarketSpan. With me is our CFO, Craig Matthews, who will also be available to
respond to your questions. You have most likely seen the statement issued by the
Board of Directors on Friday, appointing me as Chairman & CEO. This unanimous
action by the Board of MarketSpan is particularly gratifying and I appreciate
their support.
The purpose of this conference call today has been to talk about the future of
MarketSpan and begin to clarify our strategy with the investment community.
While I am certain that there is a lot of interest in the board report and its
contents, I am not at liberty to discuss the report, since it has not been made
public.
I want to begin this conference call by telling you that I firmly believe in
maximizing shareholder value. Undoubtedly over the past few weeks you have heard
indirectly about my expectations for MarketSpan. Let me share my views with you
now.
First, return to shareholders has always been the over-riding consideration in
the way that we have managed Brooklyn Union and KeySpan. Our goal has been to
maximize shareholder value and this will continue to be the key factor that
management and the board of MarketSpan consider in managing our existing
businesses and deploying the $2 billion in cash received from the LIPA sale.
<PAGE>
Our commitment to shareholders is more than a promise - we have proven this
through our actual performance. For 17 of the past 18 years, Brooklyn Union
exceeded its allowed return on equity. Since we successfully negotiated price
cap regulation, which was the first of its kind in the country, returns have
been even higher. Last year our utility return was 13.51%, well above gas and
electric industry averages.
Our approach in the non-regulated area has been conservative and bottom line
driven. The Company has turned down hundreds of opportunities to invest capital
in non-regulated business because they did not meet our strict return
guidelines. Our unregulated investments have been profitable.
Those that have not achieved their expected returns have been modest investments
and have been disposed of for not meeting our goals. Even in these cases,
shareholder returns have been protected through the successful sale of these
investments.
What counts most is our track record for return to our shareholders. In that
regard, KeySpan's return to shareholders for the ten years prior to the merger
closing was 15.9%. This compares very favorably to the return of the S&P
Utilities Index. It is our intention to continue our tradition of superior
returns going forward by growing and by efficiently managing our utility
business and seeking prudent investments.
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The two most critical issues facing the Company are the deployment of the cash
from the LIPA transaction and the effective management of our existing regulated
operations. First, let me address the issue of cash deployment.
A great deal has been written in the media about the deployment of the proceeds
from the sale of assets to LIPA, in particular, about my reported motivations
and intentions. Let me set the record straight. Any use of the LIPA proceeds
will be based upon disciplined financial analysis, reviewed by our top
management team and endorsed by the board of directors. Our foundation has been
a solid, well-run company that provides superior returns to shareholders, and we
intend to build on that going forward in a manner that will benefit all
shareholders. The ultimate determination of how the cash will be invested will
be based on achieving maximum return on the investment in order to produce
long-term shareholder value.
At the same time, I would not rule out the sale of the Company at a price that
reflects the intrinsic, long-term value of the Company. At today's price, I am
convinced that MarketSpan is greatly under-valued. Therefore, I am pleased to
announce that the board of directors has approved a purchase of approximately 10
percent or 15,000,000 shares of common stock through open market purchases. Such
purchases will begin August 13, 1998 and management and the board will consider
additional purchases once this program is fulfilled, if warranted.
Beyond share repurchases, we will carefully search for opportunities to grow
earnings and improve returns through mergers and acquisitions. Our commitment
here is to enter into
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<PAGE>
transactions that enhance shareholder value, and not to engage in ventures that
would be dilutive over the medium to long-term. I continue to believe that
convergence and consolidation in the utility industry will present opportunities
to improve growth rates, increase earnings for shareholders and reduce costs to
consumers. If opportunities arise that we believe meet our criteria, we will
pursue them.
The benefits of utility mergers or acquisitions should be familiar to all of
you. Let me reiterate the benefits I envisioned for shareholders as a result of
the merger which brought about MarketSpan, and which many of you endorsed. It's
a great strategic fit.
There is a tremendous opportunity for growth on Long Island. Less than 30% of
the residences use natural gas for heating. I believe that the reputation and
marketing expertise of Brooklyn Union can be utilized on Long Island to
accelerate growth in natural gas sales. Some 160,000 customers have a gas
service in the home used only for cooking or water heating, and they are ripe
for conversion to heating, our primary growth market over the years. There have
been moratoriums on new gas sales in the North and South fork of Long Island for
30 years, and we expect to lift them in the near future as we make substantial
investments in expanding the infrastructure on Long Island.
Because of the adjacency, the synergies between the two companies will be
maximized. We have pledged $1 billion in savings to our customers and I believe
we can exceed that level for the benefit of shareowners in the long-term.
- 4 -
<PAGE>
We also want to capitalize on the high level of customer satisfaction that both
companies have achieved. This will allow us to greatly expand our affiliated
energy services companies to grow their businesses and provide a full array of
energy services across the residential and commercial markets both in our
territory and the Northeast as adjacent utilities unbundle their services.
Beyond potential opportunities in the utility industry, we will consider related
opportunities in the gas and electric industry. These opportunities will only be
considered if they provide risk adjusted returns superior to our hurdle rates
and if they involve businesses in which we have expertise and a record of
success. Under no circumstance will we do a deal for the sake of doing
something.
An example of a related activity is our investment in the Iroquois Pipeline. We
are now the largest LDC owner of that facility and have earned an average annual
return on equity of 13.6 percent since its first full year of operation. Another
example is our investment in Houston Exploration which has achieved a total
annual return to shareholder of 20% since its inception in 1986. We have
maintained a profit-oriented, conservative approach to our investments in energy
related businesses, which exemplifies both our commitment to shareholders and
our ability to leverage our above average utility returns.
Managing the regulatory environment has been one of our core competencies, and I
am confident that we can quickly restore favorable relationships with the New
York State Public Service Commission. Re-establishing favorable regulatory
relations is key to the maintenance of returns
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<PAGE>
from our regulated activities since 87 percent of our current net plant
investment is in businesses regulated by the state of New York.
We have a history of good relations with public officials who influence energy
policy. I have contacted many of these parties in the last few days and this has
reaffirmed my confidence in building on this excellent relationship.
We have also contacted LIPA, MarketSpan's largest customer, and have begun the
process of rebuilding that relationship. We have a very talented force of
employees and managers effectively running the transmission and distribution
assets for LIPA, and I have full confidence in our ability to fully realize the
incentives under that contract.
At the same time we need to greatly enhance MarketSpan's community relationships
to make us more accessible and sensitive to the needs of all the communities we
serve. We will build on Brooklyn Union's reputation and track record in that
regard. This will enhance our growth opportunity and capitalize on our access to
the over two million customers that make up our customer base. I have begun the
process of reassuring our employees who have been affected by the uncertainty of
the last few months. It is important that they all understand we are one company
and remain focused on moving forward to achieve all the potential of this new
company.
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<PAGE>
We certainly recognize the need to enhance our relationships with our major
shareholders and the analysts who follow and support our stock. KeySpan has
traditionally maintained a proactive forthcoming investor relations program, and
we are committed to providing the same level of communications with investors
going forward.
Our 10-Q report will be issued on August 12, 1998 and shortly thereafter we will
host another conference call to discuss financial and other important matters of
the Company. We will follow that call with individual and group meetings to
update members of the financial community on our progress and our future plans.
Thank you for listening. Craig and I will be happy to answer your questions.
- 7 -
Exhibit 99.4
MARKETSPAN JOINS CROSS BAY PIPELINE DEVELOPMENT
Brooklyn and Hicksville, N.Y., August 4, 1998 - MarketSpan Corporation (NYSE:MN)
announced today that its subsidiary, KeySpan Energy Development Corporation, has
joined Duke Energy Corporation (NYSE:DUK) and the Williams Companies (NYSE:WMB)
in developing the Cross Bay[SM] pipeline.
The Cross Bay[SM] pipeline will transport gas from interstate pipelines in New
Jersey to New York City and Long Island. These existing pipelines, operated by
Texas Eastern Transmission Corporation and Transcontinental Gas Pipe Lines
Corporation (TRANSCO), are owned by Duke Energy and Williams, respectively.
In the first stage of development, expected to cost $45 million, the Cross
Bay[SM] group will build new compression facilities and expand current pipelines
to transport an additional 125 million cubic feet of gas per day to New York
City and Long Island. The new system is scheduled to begin operating in November
2000, supplying customers served by Brooklyn Union and Consolidated Edison. To
meet future regional demand, Cross Bay[SM] may be expanded to carry up to 700
million cubic feet per day.
During an open season planned for August 1998, the Cross Bay[SM] group will
invite companies to communicate their interests in subscribing to firm gas
transportation capacity from the pipeline. The Cross Bay[SM] group expects to
file its plans with the Federal Energy Regulatory Commission in November 1998.
"Cross Bay[SM] is another step toward our goal of becoming a dominant energy
company in the Northeast. By delivering additional volumes of clean natural gas
to the New York area, Cross Bay[SM] will enhance shareholder value while
supporting the growth of a competitive energy market in this densely populated
location," said Robert B. Catell, chairman and chief executive officer of
MarketSpan Corporation.
"Cross Bay[SM] is a team effort. Duke Energy and Williams provide the foundation
for delivering reliable gas supplies to the New York metropolitan area.
MarketSpan provides access to this growing gas market," said Robert Evans,
president of Texas Eastern and Algonquin Gas Transmission Company.
"Adding MarketSpan to the Cross Bay[SM] pipeline group will help ensure that
this project is well positioned to satisfy the future needs of New York and Long
Island - two dynamic gas markets," said Cuba Wadlington, Jr., senior vice
president and general manager, TRANSCO pipeline system.
MarketSpan Corporation is an energy holding company whose principal
subsidiaries, including Brooklyn Union, provide gas and electric services to
more than two million businesses and households in Long Island and parts of New
York City. This territory covers 1,417 square miles and a population of
approximately 6.7 million people. MarketSpan companies also have interests in
domestic oil and gas exploration and production, gas transmission, and gas
storage. Other MarketSpan holdings include unregulated energy services companies
operating in the Northeast. Further, MarketSpan has international investments in
gas distribution and gas transmission. Additional MarketSpan information can be
found at www.marketspancorp.com.
