FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: October 23, 1995
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-1401 23-0970240
(State or other (Commission file (IRS Employer
jurisdiction of number) Identification Number)
incorporation)
2301 Market Street
Philadelphia, Pennsylvania 19101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including zip code: (215) 841-4000
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ITEM 5. OTHER EVENTS
On October 23, 1995, PECO Energy Company issued
the following press release:
PECO ENERGY MAKES FINAL OFFER FOR PP&L RESOURCES
VALUED AT $27.50 PER PP&L SHARE
PECO Energy Will Not Initiate Hostile Takeover of PP&L
------------------------------------------------
PHILADELPHIA (October 23, 1995) -- PECO Energy Company
(NYSE: PE) today announced that it has increased the value
of its proposed merger with PP&L Resources, Inc. (NYSE: PPL)
to $27.50 per PP&L share.
Under the PECO Energy proposal, each outstanding share of
PP&L Resources common stock will be exchanged for 0.921
shares of PECO Energy common stock. Based upon the closing
price of PECO Energy stock on Friday, October 20, 1995, this
represents a value of $27.50 per share or approximately $4.3
billion in the aggregate. This is a premium of 46% above the
market price for PP&L Resources common stock on Friday,
August 11, 1995, the last trading day prior to PECO Energy's
public announcement of its merger proposal, and a premium of
73% above PP&L's book value. PECO Energy confirmed that it
will pay $27.50 per share in cash for at least 20% of the
PP&L shares if PP&L's board prefers.
The proposal also contains commitments to protect PP&L
customers, employees and the communities it serves.
PECO Energy said that its proposal is final and will expire
in all respects at the close of business on Friday, November
3, 1995, unless the PP&L board responds favorably by that
time.
Joseph F. Paquette, Jr., PECO Energy's Chairman, said, "We
still believe this is a compelling transaction that makes a
lot of sense. PP&L shareholders receive a generous premium
coupled with a very attractive dividend yield. PECO Energy
today raised its annual dividend to $1.74 per share. With
the growth trend of our dividend and this exchange ratio,
PP&L Resources shareholders have a unique opportunity to
step up to a new company well positioned to provide them
with superior earnings and dividend growth in the future. We
believe that once the PP&L board gives our proposal a fair
and objective review, they will want to pursue it.
"I want to emphasize two points. First, this is PECO
Energy's final offer. Second, although PP&L has
characterized our proposal as hostile, I want to assure PP&L
and the rest of Pennsylvania that if the PP&L board is not
interested in a combination, we will take no further action.
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"Each of the elements of our proposal would be made legally
binding through a negotiated merger agreement and would be
filed with the Pennsylvania Public Utility Commission, whose
approval is required for a combination of PECO Energy and
PP&L Resources," Mr. Paquette continued. "It is important to
remember that only this combination of companies produces
benefits of the magnitude of $2 billion over ten years for
customers, shareholders and the Commonwealth of
Pennsylvania."
The full text of the letter to PP&L follows:
October 23, 1995
William F. Hecht
Chairman, President & Chief Executive Officer
PP&L Resources, Inc.
Two North Ninth Street
Allentown, PA 18101
Dear Bill:
The PECO Energy Board of Directors acted today to increase
the value of its merger proposal to $27.50 per PP&L share
and to provide assurances that will satisfy PP&L's concerns
regarding customers, employees and communities.
Under our proposal, each outstanding share of PP&L Resources
common stock will be exchanged for 0.921 shares of PECO
Energy common stock. Based upon the closing price of PECO
Energy stock on Friday, October 20, 1995, the value of this
transaction would be $27.50 per share or approximately $4.3
billion in aggregate. This represents a premium of 46% above
the market price for PP&L Resources common stock on Friday,
August 11, 1995, the last trading day prior to PECO Energy's
public announcement of its merger proposal and 73% above its
book value. Moreover, we are willing, if your board wishes,
to provide a portion of the shareholder benefits of the
merger in cash. PECO Energy would pay $27.50 per share in
cash for at least 20% of the PP&L shares.
I would like to point out that PECO Energy today increased
its common stock dividend by 7.4%. Coupled with the higher
exchange ratio, PECO Energy needs only to increase its
common dividend by 5% in 1996 for PP&L shareholders to
receive a dividend increase as a result of the merger.
Bill, I hope you and your board will focus on the economic
benefits of a merger for your shareholders and all of
Pennsylvania. It is time to take a comprehensive look at all
aspects of PECO Energy's proposal and not squander this
opportunity to provide a step up in value for your
shareholders with a full and fair price and attractive
dividend yield, lower rates for customers in each territory
and a vibrant economy for Pennsylvania.
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Each element of our proposal would be made legally binding
through a negotiated merger agreement and would be filed
with the Pennsylvania Public Utility Commission (PUC), whose
approval is required for a combination of PECO Energy and
PP&L Resources. Our proposal includes the following
commitments to PP&L and its constituencies.
CUSTOMER COMMITMENTS
o Reduce rates: PECO Energy will reduce base rates by $40
million per year for PP&L customers and $40 million per
year for PECO Energy customers -- a total of $860
million in the first ten years across both companies.
It is worth clarifying a point on which there has been
some unfortunate confusion -- we will keep rates for
PP&L customers $40 million below the level mandated by
the PUC in its order to PP&L on September 27, 1995. For
example, in 1999, when PP&L says it would adjust
customer base rates by $90 million, with a merger of
PECO Energy and PP&L, rates would be $40 million lower
than that level.
o Freeze base rates: Rates will be frozen at this lower
level for a minimum of five years and for the
foreseeable future thereafter.
o Keep rates separate: Rates paid by PECO Energy and PP&L
customers will remain completely separate and will
never be merged or averaged to the detriment of PP&L
customers. This means separate structures for base
rates, any adjustment clauses, or riders to base rates.
In addition, we will ensure that existing investments
are recovered through these separate rate structures.
o Benefit customers in the future: A significant portion
of merger savings would be used to accelerate
depreciation of generating assets, thereby reducing
rate base, mitigating potentially stranded investment,
and reducing the need for future rate increases. PECO
Energy intends to use these savings to increase
depreciation for both Limerick and Susquehanna. This is
in addition to our Competitive Breakthrough Strategy,
which will increase depreciation for Limerick by $100
million per year.
o Maintain the customer service PP&L has provided: We
will share best practices of our two companies.
ECONOMIC DEVELOPMENT COMMITMENTS
o Allocate $5 million per year of additional funds: PECO
Energy will continue both companies' outstanding
records of community involvement and economic
development. We will allocate $5 million of additional
funding, or $50 million over ten years, equally across
both service territories. This is in addition to the
level of economic development funding of both companies
at the end of fiscal 1995.
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o Keep regional offices and corporate headquarters open:
PECO Energy has no intention to close regional offices
or PP&L's corporate headquarters in Allentown.
EMPLOYEE COMMITMENTS
o Partner on decision-making with PP&L management: In the
merger, management of both companies will jointly make
decisions on employee selection and relocation. Any
workforce reductions will be implemented fairly across
the two companies without significant layoffs through a
combination of reduced hiring, attrition and voluntary
retirement and separation programs.
o Maintain PP&L as a separate operating unit.
o Leave employees involved with generating and delivering
electric and gas service to customers largely
unaffected.
Bill, we anticipate that you and your board will take the
time for a deliberate decision about the future for your
business and will recognize your obligation to examine PECO
Energy's proposal in a diligent and informed manner as well
as to act prudently and responsibly. We do not want you to
rush to judgment; however, our proposal will expire at the
close of business on Friday, November 3, 1995, unless your
board responds favorably by that time. I would like to state
clearly that this is PECO Energy's final offer and that we
are committed to a combination with PP&L Resources only
through a friendly merger with the board of directors of
PP&L Resources. If your board is not interested in a
combination, we will take no further action.
We stand ready to meet with your board of directors to
answer questions you may have and negotiate the details of
other issues important to you. The competitive nature of our
industry is here to stay. Consolidation is inevitable. In
isolation, PP&L Resources cannot hope to achieve for its
shareholders the earnings and dividend growth possible in a
merger with PECO Energy, let alone the long-term benefits
and commitments for its customers.
Sincerely,
/s/ Joseph F. Paquette, Jr.
PECO Energy is an operating utility which provides electric
and gas service in southeastern Pennsylvania. The total area
served by the Company covers 2,107 square miles. Electric
service is provided to approximately 1.5 million customers
throughout an area of 1,972 square miles with a population
of approximately 3.6 million, including 1.6 million in the
City of Philadelphia. Natural gas service is provided to
approximately 379,000 customers throughout a 1,475
square-mile area of southeastern Pennsylvania adjacent to
Philadelphia with a population of approximately 1.9 million.
New records for both electric and gas sales
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were set in 1994, and the Company's nuclear operations
achieved milestones in safety and performance. Operating
revenues were a record $4.0 billion in 1994.
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SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant had duly caused this
report to be signed on its behalf by the undersigned hereto
duly authorized.
PECO ENERGY COMPANY
/s/ J. B. Mitchell
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J. B. Mitchell
Vice President, Finance and Treasurer
October 23, 1995
