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NORTHEAST UTILITIES
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The following information was included in a March 23, 2000 Special Edition
of NU Today, a bulletin posted to all employees of Northeast Utilities:
Approved copy, ready for publication, revision 6, March 23, with legend
included
So what is the deal?
By Investor Relations and Shareholder Services
Note: Words in bold are defined further in the glossary of terms on pages
2 and 3.
The goal of this article is to explain to you - as a shareholder - the
merger agreement between Consolidated Edison (Con Edison) and Northeast
Utilities (NU).
As you already know, this is not a simple deal to understand, but if you
spend a few minutes reading this story, we believe many of your questions
will be answered. We hope you will encourage your peers to read it, too.
From the outset, please understand that this article will not attempt to
address employment issues associated with the merger. Those issues, which we
know are critically important to all employees, are being addressed by the
transition teams, and more information will be made available as decisions
are made this spring and summer.
We are just now beginning to talk to you about the merger because
regulatory requirements prevent merging companies in any industry from
discussing their deals publicly - beyond the details available the day the
merger was announced - before the complete proxy statement is mailed to all
shareholders.
With the proxy statement being mailed the first week in March, we are now
able to begin discussing the merger with you. This delay (October-March) is
due to the fact that the SEC carefully reviews the proxy statement before
allowing us to ask investors for support. We therefore are required to stick
pretty closely to what's on the proxy statement when we talk to shareholders,
including employees.
This is designed so that companies "sell" their proposal to investors
through SEC reviewed and authorized documents.
Most of the employee communications sent to you over the next month or so
about the financial aspects of the merger also will be sent to the SEC.
We urge you to read the proxy statement. It's big, it's dense and it's
legalistic. But the proxy is the best source of information on this deal and
should answer your questions. This article is an effort to summarize some of
what is in the proxy, but it doesn't replace it.
So let's discuss the deal. Con Edison has offered to buy all of the
shares of Northeast Utilities for a base price of $25 a piece. The $25 price
is subject to adjustment by three very important factors:
* The timing of the closing of the deal,
* The successful auction of Millstone
Station (the divestiture condition),
* Con Edison's share price just prior to closing (the pricing period).
Now let's look at each of the three factors which will affect that $25
price, starting with the timing issue.
The price Con Edison pays for NU shares starts to increase on August 5,
2000, by about one third of a penny per day, or about 10 cents per month, for
every day the deal does not close. If we close the merger at the end of
December 2000, that would mean an extra 50 cents per share would be paid to
NU shareholders on top of the base price of $25 per share. A best-case
scenario would enable NU and Con Edison to close this deal in August.
Second, there is the divestiture condition. As incentive for NU to sell
Millstone Station, Con Edison has agreed to pay an extra $1 per share if the
Utilities Operations and Management Unit (UOMA) of the Connecticut Department
of Public Utility Control recommends the sale of Millstone to the winning
bidder in the auction.
NU shareholders will receive this $1 per share if UOMA makes this
recommendation by December 31, 2000, or by the time the merger closes -
whichever is later.
What happens if we close the merger before UOMA makes its recommendation?
As long as the recommendation is made before December 31, 2000, NU
shareholders still will receive the $1 for each of their shares; it just will
be paid to them separately. NU shareholders will not receive the $1 per
share if the recommendation never comes or if it comes after December 31,
2000 and after the merger closes.
The third factor which affects the value of the deal is Con Edison's share
price during the pricing period, and frankly, this is the one that most
shareholders are thinking about right now. It's also the most complicated,
but bear with us and we can help you understand it.
The merger agreement places what's called a "collar" on Con Edison's share
price of between $36 and $46. The collar limits -- both above and below the
$36 to $46 range -- the number of shares of Con Edison stock that will be
issued to those shareholders electing to exchange their NU shares for Con
Edison shares. It has absolutely no impact on the cash portion of the deal.
In order to demonstrate the impact of the collar, we need to make a few
basic assumptions. First, let's assume the deal closes August 1, 2000 so the
merger price would be $25. (Let's leave the Millstone divestiture dollar
aside for now.)
To determine the value of the deal, you multiply the number of NU shares
you own by the merger price. Let's say you own 100 shares.
100 shares x $25 merger price = $2,500
If you elect to receive all cash, you'll receive $2,500 (subject to
proration), which will be subject to taxes if you paid less than $25 per
share for them originally. If you elect to receive all stock, you take the
math one step further and do some basic division. If Con Edison's price
during the Pricing Period is somewhere between $36 and $46, you divide your
$2,500 by the actual average trading price. Let's assume the average trading
price is $36.
$2,500/$36 = 69.4 Con Edison shares
Your 100 NU shares would be exchanged for 69.4 Con Edison shares, which
would have a total value of $2,500.
The collar will have an impact on the total value of the deal only when
Con Edison's share price is below $36 or over $46. Under the terms of the
merger agreement, the Con Edison share price used as the denominator in the
above calculation may not be less than $36 or more than $46. Here's what
that means.
Let's say Con Edison's average price is $30 per share.
100 NU shares x $25 merger price = $2,500
Again, if you elect all cash, you receive $2,500 and you are not impacted
by the collar. However, bear in mind, that due to "proration," you may not
receive 100 percent cash even though you elect all cash. If you elect to
receive all stock, here's how the math works. Instead of using the actual
average price ($30) as the denominator, you must use $36.
$2,500/$36 = 69.4 shares
However, those 69.4 shares have a market value of $30 each. If you turned
around and sold them in the market that day, they would be worth only $30
apiece.
69.4 shares x $30 = $2,083
If you divide that by your original 100 NU shares, you'll see that you
were paid $20.83 per share.
$2,083/100 shares = $20.83
However, the receipt of Con Edison shares is nontaxable, whereas, as
mentioned above, receipt of cash is taxable.
If you're confused, you're not alone. Even sophisticated institutional
investors and analysts who look at mergers frequently, have needed some help
understanding the collar provisions of this deal. You may need to read about
the collar a few more times, and maybe fiddle around with a calculator, a
pencil and a piece of paper.
So now that we've explained the deal, let's take a look at what it will
take to get it approved by shareholders
In order for the vote to pass, NU needs a supermajority to approve the
deal.
A supermajority is a fancy way of saying we need two-thirds or about 66.7
percent of outstanding shares to be voted "yes" in order to consummate the
merger. That's about 90 million shares voting "FOR" the merger. Votes that
are not cast are considered votes "against" the merger, as are actual votes
cast "against."
But what if the vote fails?
Well, that means that the current merger proposed between the two
companies would fail. If NU's management still believed a merger was in the
best interests of shareholders, and if the two companies still wished to
merge, they might try to enter into a new deal. Or, NU might seek another
merger partner.
The failure of this deal to pass won't change the industry and market
forces which led to the merger in the first place. It won't change the fact
that NU needs to grow in order to survive in the competitive environment.
Our goal, as we stated at the outset, is to try to explain this merger as
clearly as we can. We know there are lots of questions out there, and we
look forward to answering them in face-to-face meetings, as well as over the
phone or e-mail.
Graphics within the article
Proxy voting cards
Each proxy card represents NU shares held in different locations.
* If you participate in the 401(k), you will receive a proxy from Fidelity.
* If you participate in the Employee Share Purchase Plan, you will receive a
proxy from Salomon Smith Barney for those shares.
* If you are a registered shareholder with NU, Shareholder Services will be
sending you a proxy.
Remember, all your votes count!
About the proxy
Shareholders may receive more than one proxy statement. You don't have to
read each one but you do need to vote each proxy card you receive. Each proxy
card represents NU shares held in different locations. Not voting is the same
as casting a "no" vote.
How will Con Edison pay me for my shares?
Later in the process, assuming we receive all necessary approvals, NU
shareholders will have the right to choose either cash or Con Edison shares
as payment for their NU shares.
However, the entire pool of NU shares ultimately will be paid for by Con
Edison with 50 percent of such shares being paid for in cash and 50 percent
being paid for in Con Edison shares. The process of adjusting the entire
pool of elections is called proration.
A pricing period?
The pricing period for this merger is 20 randomly selected days during the 40
days leading up to the closing. We don't know when the closing is, so we
don't know when the pricing period is, but we can safely assume it's at least
several months away.
For more
information
* Call the Con Edison/NU merger information line at 1-800-558-5947
* Call Shareholder Services at 1-800-794-1104 from 8 a.m. to 9:30 p.m.
* Contact Corporate Communications at 860-665-3256 or Berlin Ext. 3256.
* Read Con Edison/NU Merger News on the Employee Information Board,
available through the NUnet.
Con Edison/NU
merger timeline
1999
Oct. 13 - Consolidated Edison and Northeast Utilities announce that the
boards of both companies have approved a definitive merger agreement to
combine the two companies. Under the agreement, Consolidated Edison will
acquire all of the common stock of NU for $25 per share in a combination of
cash and Consolidated Edison common stock, subject in the case of the common
stock, to certain collar provisions.
Nov. 17 - NU and Con Edison file their joint proxy and registration statement
with the Securities and Exchange Commission (SEC).
2000
Jan. 3 - As part of the overall communications effort, an 800 number is
established for employees of both companies to call to obtain merger updates
and ask questions. The number is 1-800-558-5947.
Jan. 11 - The SEC provides the first round of 120 comments on the joint proxy
statement.
Jan. 12 - NU and Con Edison begin the first of a series of state and federal
regulatory filings. Con Edison filed in New York with the New York State
Public Service Commission, and NU filed in Connecticut with the Department of
Public Utility Control.
Jan. 21 - The companies have a joint filing with the Department of Justice
concerning antitrust matters.
Jan. 21 - The companies respond to 120 comments from the SEC on the initial
filing of the joint proxy statement.
Feb. 2 - Mike Morris and Eugene McGrath, Con Edison's chairman and CEO, hold
joint Employee Forum in Berlin.
Feb. 3 - The Connecticut Department of Public Utility Control establishes the
schedule for hearings on the merger application, beginning in mid-April. The
schedule calls for a decision by June 21.
March 1 - Con Edison and NU receive SEC approval to mail joint proxy
statements seeking shareholder approvals.
April 14 - NU and Con Edison will hold separate shareholder meetings for
shareholders to vote on our merger.
Understanding the proxy
A glossary of terms
Merger agreement - The legal document which defines all the terms and
conditions of the merger between our two companies.
Proxy statement - The legal document which explains the details of a vote
that will be requested from shareholders. Proxies that relate to a proposed
merger must be filed with the Securities and Exchange Commission (SEC). The
SEC then reviews the entire document.
Proxy card - The voting instruction form enabling shareholders to cast their
vote. This is the document on which a shareholder casts his or her vote and
returns it for tallying.
Election period - The defined period of time, usually just before the merger
closes, when shareholders are asked to elect how they wish to be paid for the
exchange of their shares. In this case, shareholders are asked to decide
between cash and shares of Con Edison stock.
Proration - The process of adjusting the elections made by shareholders after
the election process to meet the terms of the merger agreement. In this
case, proration will adjust the total number of NU shares to be converted to
50 percent cash and 50 percent shares.
Collar - The term used in this merger agreement to describe upper and lower
limits of a price range on Con Edison's stock. Below the collar level, the
stock portion of the deal declines in value. Above the collar, the stock
portion of the deal increases in value. The cash value is unaffected by the
collar.
Break-up provision - The common name for language in a merger agreement which
defines the circumstances under which either party to the merger may withdraw
from the deal and the fees associated with the decision to withdraw.
Registered shareholder - A shareholder whose name and ownership is registered
directly on the books of the company. NU has about 84,000 registered
shareholders.
Street name shareholder -A shareholder whose name and ownership are
registered on the books of a broker/dealer or other institution and is not
directly available to the company. For NU, this is about 40,000 holders.
Institutional investor - A street name holder who invests in large amounts,
generally for pension funds, mutual funds, banks or other money management
purposes.
Equity analyst - Generally, equity analysts are individuals who evaluate
various investment options and advise investors on their analysis of the
financial strength of a corporation, their view of the industry and its risks
and the strategy of the business.
SEC - The Securities and Exchange Commission is a federal regulatory body
which governs the registration of securities of all publicly held companies
and also regulates registered public utility holding companies.
UOMA - A section of the staff of the Connecticut Department of Public Utility
Control called the Utilities Operations and Management unit, which is
responsible for managing the auction of CL&P's generation assets.
Pricing period - In this merger, the 40 days ending five days before the
effective date of the merger, from which 20 days will be randomly selected to
average the closing price of Con Edison's shares. Provided this average
price falls within the collar, it will be used to determine the ratio of Con
Edison shares that NU holders will receive in exchange for their NU shares.
Declaration of Trust - NU's basic organizing document, similiar to a
corporation's charter or certificate of incorporation.
Divestiture Condition - A provision of the merger agreement designed to
provide incentive for NU to sell Millstone Station. This provision allows
for payment of $1 for each NU share if UOMA recommends the sale of the
Millstone units to the winning bidder in the auction by the later of either
December 31, 2000, or the closing of the merger.
LEGEND
For more information
Con Edison and Northeast Utilities have filed a joint proxy
statement/prospectus and other documents concerning the merger with the
United States Securities and Exchange Commission ("SEC") and have mailed the
joint proxy statement/prospectus to their shareholders. THESE DOCUMENTS
CONTAIN IMPORTANT INFORMATION AND WE URGE YOU TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT HAVE BEEN OR WILL BE FILED WITH
THE SEC. You can obtain the documents free of charge at the SEC's Web site,
www.sec.gov. In addition, the documents are available free of charge by
requesting them in writing or by telephone from the companies at the
following addresses: Consolidated Edison, Inc., c/o The Bank of New York
Investors Relations Department, P.O. Box 11258, Church Street Station, New
York, New York 10286-1258, telephone 800-522-5522 and Northeast Utilities,
P.O. Box 5006, Harford, Connecticut 06102-5006, Attention: Shareholders
Services, telephone 860-665-4801 or 800-999-7269.
This information contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. The forward-looking
statements are subject to various risks and uncertainties. Discussion of
factors that could cause actual results to differ materially from
management's projections, forecasts, estimates and expectations may include
factors that are beyond the company's ability to control or estimate
precisely, such as estimates of future market conditions, the ability to
realize cost savings and the terms associated with obtaining regulatory
approvals. Other factors include, but are not limited to, weather
conditions, economic conditions in the company's service territory,
fluctuations in energy-related commodity prices, marketing efforts and other
uncertainties. Other risk factors are detailed from time to time in the two
companies' SEC reports.
The following information will be mailed on March 24, 2000 to all employees
of Northeast Utilities:
March 24, 2000
Dear Fellow Employee,
As you know, on October 13, 1999, NU and Consolidated Edison, Inc. of New
York (Con Edison) announced a merger that valued NU at more than three times
the level at which our shares traded three years ago. I'd like to share my
thoughts on this event with you.
Of all the questions about the merger I hear, employees most often ask: "Is
this a good deal?" and "Is this merger the right thing to do?" You know my
feelings on the importance and value of our merger with Con Edison, but let
me add some additional perspective.
First, the original deal was designed to provide a per share value to NU
shareholders of approximately $25 per share, assuming a Con Edison share
price of at least $36 at closing. Today, the price of Con Edison shares is
lower, and at its current share price, NU shareholders would receive a
somewhat smaller return at closing.
Bottom Line: NU's current share price is being supported by the announced
merger. We believe that even if you allow some value for our investment in
NEON, absent the merger, our share price would be quite a bit lower than it
is today.
In the competitive arena, size matters, and the enterprise value of the
combined company will provide the financial resources that we anticipate will
be needed to grow and prosper in the future. This strength and stability
should help increase the efficiency of our operations, enhance our ability to
deploy advanced technologies, further strengthen our infrastructure and
customer service, and increase shareholder value through growth in earnings.
In short, we believe this combination presents greater prospects for a bright
future for employees, shareholders and customers.
As you know, all the details about our forthcoming merger are contained in
the Joint Proxy Statement which is also available online at
www.nu.com/investor/proxy.pdf. Please read it carefully and be sure to call
our Shareholder Services Department toll free at 1-800-794-1104 if you have
any questions.
- - more -
Your vote on these proposals is very important, and I urge you to please
complete, sign, date and return each proxy card you receive right away. In
order to be tabulated, your vote must be received by the date stated on your
proxy card(s). If you miss the deadline, your vote will not count.
Market forces tell us that we need to be bigger to survive and flourish. I
urge you to vote FOR the Con Edison/NU merger and launch a new era of
expanded options and opportunities for one of the leading energy companies in
the entire nation.
Sincerely,
/s/ Michael G. Morris
Chairman, President and Chief Executive Officer
This letter contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. The forward-looking statements
are subject to various risks and uncertainties. Discussion of factors that
could cause actual results to differ materially from management's
projections, forecasts, estimates and expectations may include factors that
are beyond the company's ability to control or estimate precisely, such as
estimates of future market conditions, the ability to realize cost savings
and the terms associated with obtaining regulatory approvals. Other factors
include, but are not limited to, weather conditions, economic conditions in
the company's service territory, fluctuations in energy-related commodity
prices, marketing efforts and other uncertainties. Other risk factors are
detailed from time to time in the two companies' SEC reports.
Con Edison and Northeast Utilities have filed a joint proxy
statement/prospectus and other documents concerning the merger with the
United States Securities and Exchange Commission (SEC) and have mailed the
joint proxy statement/prospectus to their shareholders. THESE DOCUMENTS
CONTAIN IMPORTANT INFORMATION AND WE URGE YOU TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT HAVE BEEN OR WILL BE FILED WITH
THE SEC. You can obtain the documents free of charge at the SEC's Web site,
www.sec.gov. In addition, the documents are available free of charge by
requesting them from the companies in writing:
Consolidated Edison, Inc. Northeast Utilities
c/o The Bank of New York P.O. Box 5006
Investor Relations Department Hartford, CT 06102- 5006
P.O. Box 11258, Church Street Station Attn: Shareholder Services
New York, NY 10286-1258
or by telephone:(800)522-5522 (800)999-7269 or (860)665-4801
