SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
Definitive Additional Materials
/x/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PROVIDENCE ENERGY CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No Fee required
/ / Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which transaction
applies: .
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is
calculated and state how it was determined): $
(4) Proposed maximum aggregate value of transaction: $
(5) Total fee paid: $
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
theoffsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid: $
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[PROVIDENCE ENERGY CORPORATION LETTERHEAD]
January 10, 2000
Dear Fellow Shareholder:
As we celebrate a new century, ProvEnergy is preparing to mark an exciting
new beginning through our proposed merger with the Southern Union Company of
Austin, Texas.
We'll discuss the details more completely at our regular annual shareholders'
meeting, scheduled for 10:00 a.m. on January 20 at the Biltmore Hotel in
Providence. (A second shareholders' meeting will be held in late spring for
the specific purpose of voting on the merger.) We hope that you will attend
one or both meetings. In the meantime, I want to briefly describe the
benefits of the intended combination of our two companies and ask you for
your support.
Perhaps, most importantly, when the transaction closes later in 2000,
ProvEnergy shareholders will receive $42.50 per share in cash. When the
merger was announced on November 15, 1999, this price represented a
substantial premium over the recent trading price of our stock and a multiple
of approximately 2.8 times ProvEnergy's book value. This pricing compares
very favorably with other recent acquisitions of New England gas distribution
companies.
Secondly, Southern Union is a significantly larger, fast-growing company with
a diversified earnings base. Southern Union will provide ProvEnergy the
financial resources we need to pursue our strategy of becoming a major energy
supplier in New England. Further evidence of a commitment to expansion in
New England is found in Southern Union's recent agreements to buy both Fall
River Gas Company, located just across the border in Massachusetts, and
Valley Resources, Rhode Island's second-largest (after ProvGas) distribution
company. Upon completion of all three mergers, Southern Union will serve 1.6
million gas, electric, oil and propane customers in Rhode Island,
Massachusetts, Connecticut, Pennsylvania, Texas, Missouri, Florida and
Mexico.
In addition, Southern Union shares ProvEnergy's commitment to growth of non-
regulated energy businesses. In fact, they presently operate several non-
regulated energy businesses in other regions they serve.
Under our agreement, ProvEnergy will operate as an independent division of
Southern Union, allowing us to continue our commitment to customers,
communities and employees. I'll serve as President of the division and
become a member of Southern Union's Board of Directors. Importantly, Rhode
Island will be the center of Southern Union's New England energy operations.
<PAGE>
Several of you have questioned why the merger is an all-cash transaction that
doesn't allow you the option of exchanging your ProvEnergy shares for those
of Southern Union. Since a large percentage of our shareholders are
individuals, who own the stock largely because of our dividend-paying record,
we were largely persuaded by the fact that Southern Union does not currently
pay a cash dividend. (It does pay a five-percent stock dividend.) Whereas
ProvEnergy has been operated as a traditional local distribution company
attracting a traditional income-oriented investor, Southern Union has
embarked on an aggressive, national acquisition strategy that is more apt to
be favored by a growth investor.
So, in a nutshell, ProvEnergy shareholders will receive a generous return on
their investment; customers will continue to receive outstanding local
attention and service; and employees will continue to enjoy well-paying jobs
with even greater opportunities for career development and advancement as
part of the Southern Union "family."
I hope you'll agree that this merger, approved by your Board of Directors
last November, is an exciting -- and rewarding -- opportunity for all of us.
I encourage you, if you have not already done so, to read my Letter to
Shareholders in our new annual report, which you should have received
recently, for a more complete discussion of the reasoning behind management's
decision to merge the company. If you have questions, please call our
Director of Investor Relations, Tim Green, at 401-272-5040 ext. 2224. When
you have the information you need, I hope that you will vote in favor of the
proposed merger.
Thank you for your support.
Best Regards,
/s/ James H. Dodge
James H. Dodge
Chairman, President, and Chief Executive Officer
-2-
<PAGE>
Chairman's Letter to Shareholders
To Our Shareholders,
This year has proven to be a defining moment in the history of ProvEnergy.
Simply put, the rules have changed. Our industry continues to be redefined
at a pace that is unprecedented. Our Company's competitive standing has been
challenged more keenly than ever before.
We are poised to meet that challenge. During the past year, and in the
ensuing weeks since our fiscal year-end on September 30, 1999, we have taken
exciting but critically important actions that will set the stage for
conducting business as ProvEnergy, albeit as a different entity, in the new
century.
Our actions are all about managing change. We have listened to what the
marketplace is telling us, and we are responding with a new sense of
optimism, refined priorities, and a broader outlook. Taken together, our
actions provide the theme for this year's annual report, "New Energies, New
Initiatives."
1999 Highlights
We are pleased to report the following achievements for the year:
- - ProvEnergy's one-year return to our shareholders was a record 49.5
percent.
- - ProvGas earned its allowed rate of return of 10.9 percent despite
experiencing the second warmest year in a decade. Among the key factors
contributing to this result were: ProvGas' recovery of $2.45 million of
relief under the Exogenous Change provision contained in Energize RI (of
which $2.0 million was included in 1999 margin); lower operating and
maintenance expense levels resulting from a reduction in spending; and
the capitalizing of labor related to technology projects.
- - ProvGas' key gas distribution initiatives are on target for completion
within the three-year Energize RI time frame and, in the aggregate, are
on budget. These projects include:
- Construction of the Northwest Gate Station in Smithfield, Rhode
Island,
- Replacement of at least seven miles annually of cast iron and bare
steel pipe,
- System expansion and tie-in to Quonset Point -- one of the State's
major economic development areas -- and
- Upgrading and expanding the pipeline system along Route 2 south of
Providence, a key area of growth in Rhode Island.
<PAGE>
- - ProvGas scored higher across-the-board in its customer satisfaction
ratings in 1999. An independent opinion research firm specializing in
utility customer research conducts a quarterly tracking survey that is
designed to provide a high-level assessment of customer attitudes toward
ProvGas. The survey findings showed that ProvGas achieved improvements
in "Key Attitude Rankings" among both residential and
commercial/industrial customers in 1999. The improvements were evident
in year-over-year comparisons and in peer comparisons with other energy
providers.
We place a high priority on customer satisfaction. To enhance our capability
to maintain and increase customer satisfaction, ProvGas completed
installation of a new customer billing and database information system during
1999.
Our non-regulated retail operations achieved several significant milestones
in fiscal year 1999 and contributed 39 percent of our margin growth:
- - ProvEnergy Fuels, operator of our New England retail fuel oil
distribution business, reported strong gains. With the acquisition and
integration of Keenan's Oil Service, Inc., a long-established Rhode
Island-based oil company, this business is well on its way to achieving
the critical mass it needs to be a significant factor in the regional
market.
- - Providence Place Mall, the area's newest shopping mall and entertainment
center, opened for business in August 1999. ProvEnergy Power, LLC, our
provider of outsourced energy services, is meeting the total heating,
cooling, and electricity needs of most of the tenants of Providence
Place through participation in a joint venture. The joint venture owns
the HVAC system and a 6.6-megawatt gas-fired electric generating plant
located on the ground floor of the Mall. This is one of the largest
projects of its kind in New England.
- - ProvEnergy Services, our retail energy marketer, continues to expand
geographically, in particular achieving key account growth in
Massachusetts. Importantly, ProvEnergy Services has retained over 90
percent of the business it has acquired. We believe this accomplishment
is the result of successfully implementing our value-added, customer-
service oriented business strategy.
-2-
<PAGE>
ProvEnergy had a successful year -- as measured by conventional industry
standards. However, the standards are changing.
Industry Conditions
As you are aware, the pace of restructuring of the utility industry
accelerated in 1999. Formerly vertically integrated generating, transmission
and distribution electric utilities have divested their generating assets --
often in bulk sales of baseload power plants -- leaving them with millions of
dollars to reinvest. Proceeds have been used to acquire both electric and
gas distribution companies, be they out-of-region peers, local neighboring
utilities, or competitors. Deregulation of the gas industry, which first
started at the national level with unbundling of gas pipelines, has continued
at the state level with unbundling initiatives being promoted by both local
distribution companies (LDCs) and regulators. In the process, LDCs have
become attractive investment candidates.
This restructuring phenomenon has companies reaching across industry lines
and geographic borders in their quest for growth. Traditional regional gas
and electric utilities are repositioning themselves as national and even
international retailers of distributed power and energy services. New
England-domiciled LDCs have been targeted for acquisition for a number of
reasons including the area's relatively low saturation of natural gas, the
introduction of new gas transmission lines into the region, the large number
of relatively small LDCs in a compact region, and the recent restructuring
and unbundling initiatives.
We believe that the following factors are contributing to this restructuring:
- - The perceived need for scale and the economies it suggests: not only is
bigger better, it is inevitable.
- - Today's widely held conviction that the key to success in the future is
customer access. Companies are being acquired as much for the customers
they serve as for the services they provide.
- - The recognition that technological advances in energy production and
distribution will continue to alter dramatically the way business is
conducted in the future. Technology-driven growth implies the need for
a large capital base.
As the merger and acquisition activity continued to mount, the prices and
purchase multiples being paid for companies such as ours continued to
increase.
At ProvEnergy, we are in the business of providing safe, reliable,
competitively priced energy and energy services to our customers while at the
-3-
<PAGE>
same time delivering value to our shareholders. This means that we make
economic decisions, such as committing capital, in the context of the risk-
adjusted valuations of our Company being made by the marketplace.
On July 2, 1999, our share price first hit a new high of $30 1/8. Since
then, the market has continued to place a higher valuation on our Company,
which we believed was tied to investors speculating that we were among the
next New England-based gas distribution companies to be acquired. Our stock
continued to trade in that range throughout the summer and into the fall.
As I've said and written many times before, we have a long-term strategy in
place designed to maximize the true economic value of this Company over time.
Prior to July, it was clear to us that the market was not accounting for the
expected benefits of this long-term strategy in valuing our Company.
However, the recent increases in our share price and our market
capitalization brought the market's valuation of ProvEnergy into closer
parity with our own. The challenge thus became ours: to determine how best
to achieve our long-term strategy while offering the greatest prospect of
investment return to the shareholder.
Simply put, did the advantages to ProvEnergy of remaining an independent,
stand-alone company outweigh the benefits of merging with a larger entity
that offered greater resources? As the acquisition premiums being paid for
gas distribution companies continued to climb, the benefits of remaining
independent continued to lessen. If the acquisition market were willing to
offer a riskless return, i.e. cash, to our shareholders today equivalent to
or greater than our expected return in three to five years, management had a
clear fiduciary obligation to consider the sale or merger of the Company.
This meant finding the strategic buyer willing to place the highest asset
valuation on the Company.
We also came to believe there was a window of opportunity for ProvEnergy to
optimize its name and its reputation as a reliable, competitive energy
provider and "catch the tide" of this acquisition wave. Accordingly, we
charted a course seeking a strategic alliance that would meet the following
criteria:
- - A strong financial partner with resources to support our continued
growth as a broad-based energy supplier throughout New England;
- - A commitment to our customers, the communities we serve, and our
employees;
- - Shared values of integrity, safety, and leadership; and
-4-
<PAGE>
- - Value for our shareholders that would reflect both the outstanding
growth opportunity presented by the Company's business plan and a full
price from a buyer viewing ProvEnergy as a strategic fit.
Merger Agreement Announced
On November 15, 1999, we announced a transaction that met all of these
criteria: our Board of Directors unanimously approved a definitive merger
agreement between Providence Energy Corporation and Southern Union Company of
Austin, Texas. The agreement calls for our Company to merge with Southern
Union in a transaction valued at $400 million, including assumption of
Providence Energy's outstanding debt. Under the terms of the agreement,
which is subject to regulatory approval and to the approval of shareholders
at a special meeting expected to be held in early 2000, our shareholders will
receive $42.50 in cash for each Providence Energy share.
The terms of this merger are extremely positive for ProvEnergy, its
shareholders, employees, and customers. First and foremost, the merger
enables us to provide a superior total return on investment to our
shareholders upon closing. At the same time, it enhances our ability to
participate in the opportunities of a changing industry and to achieve our
long-term goals and strategic objectives. It grants ProvEnergy access to
resources that will enable us to compete and to honor our commitments to our
customers, our community, and our employees. In addition, Southern Union has
agreed to operate ProvEnergy as the headquarters for its New England
operations. This will enable us to continue serving our market with the same
skilled and dedicated people who know and understand local needs. Moreover,
Southern Union has a business strategy of supporting investment in non-
regulated energy businesses.
The price being paid for the Company is attractive. When viewed as a
multiple of the book value of our assets and as a premium over the recent
trading price of our stock, the purchase price is at the upper range of
prices paid recently for New England-based gas distribution companies. For
our shareholders, it is a riskless-capital, all-cash transaction, whereas
many of the recent mergers have been transactions involving all stock or a
combination of cash and stock.
We are aligning with a substantial partner. After our merger, and Southern
Union's pending mergers with our neighboring utilities, Fall River Gas
Company and Valley Resources, Inc., the combined entity will serve some 1.6
million gas, electric, oil, and propane customers in Rhode Island,
Massachusetts, Connecticut, Pennsylvania, Texas, Missouri, Florida, and
Mexico.
-5-
<PAGE>
Outlook
Under the terms of the anticipated merger, it is expected that Providence
Energy Corporation, The Providence Gas Company, and North Attleboro Gas
Company will cease to exist as separate corporate entities. They will be
merged into Southern Union and will be operated as a division. We will,
however, continue to do business under the ProvEnergy, ProvGas, and North
Attleboro Gas names and to use the new logo. Our goals, our strategies and
our vision -- "New England's First Choice for Energy Services" -- will remain
the same.
The financial strength of the combined companies will enhance our ability to
meet the rapidly changing needs of our customers while creating new and
exciting opportunities for the employees of ProvEnergy and ProvGas. We will
be armed with new resources to continue pursuing "New Energies, New
Initiatives."
With the declaration of our fourth quarter dividend, on October 21, 1999,
ProvEnergy marked the 150th anniversary of consecutive cash dividends. This
accomplishment has remained unmatched by any gas distribution utility in the
United States. Yet, while we remain fiercely proud of our heritage and our
long-established reputation for providing safe, reliable, competitively
priced energy services, we also realize that "the past is not prologue." We
cannot rest on our laurels. The demands of today's marketplace require new
strengths, new resources and new initiatives.
It is fitting that we address these new challenges with one of the strongest,
most talented management teams in the industry. The abilities of this team
are evident in some of the recent innovations of this Company: our
negotiation of the Energize RI rate stabilization agreement, our gas supply
outsourcing agreement, our participation in the Providence Place Mall, and
our diversification into the fuel oil distribution and retail energy
marketing businesses.
As I stated at the beginning of this letter, this year has been a defining
moment in the history of our Company. As ProvEnergy positions itself for the
competitive landscape of the future, I want to thank our Board of Directors,
shareholders, employees, and customers for their continued encouragement and
support. Nowhere has the pace of change been felt more keenly than by our
employees. In a short amount of time they have had to learn many new
-6-
<PAGE>
systems, new technologies, and new ways of serving customers. As a group,
our employees -- of both our regulated and non-regulated business lines --
have really stepped up to the challenges occasioned by these changes, and we
owe them a special expression of gratitude.
Thank you.
Sincerely,
/s/ James H. Dodge
James H. Dodge
Chairman, President, and Chief Executive Officer
December 8, 1999
-7-
