UNITED STATES
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
September 23, 1999
(Date of earliest
event reported)
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 1-1401 23-0970240
(State or other (Commission (IRS Employer
jurisdiction of file number) Identification
incorporation) Number)
230l Market Street, Philadelphia, Pennsylvania 19101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 841-4000
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Item 5. Other Events
Chicago, IL and Philadelphia, PA (September 23, 1999) - Unicom
Corporation (NYSE: UCM) and PECO Energy Company (NYSE: PE) today announced that
they have entered into a definitive agreement providing for a merger of equals.
The merger, which has been unanimously approved by both companies' boards of
directors, will create a new holding company with a total value of approximately
$31.8 billion ($15.2 billion in equity market value; $16.6 billion in debt and
preferred stock). Shareholders of both companies will be offered the option of
receiving cash or stock in the new holding company. The transaction will be
accounted for as a purchase and is anticipated to be accretive to both
companies' earnings per share in the first year after closing, excluding
one-time merger-related charges.
The new holding company will be the nation's largest electric utility
based on its approximately 5 million customers and it will have total revenues
of $12.4 billion. The combined company will be the nation's fourth largest power
generator, with a generation portfolio of more than 22,500 megawatts, and will
be a leader in the growing U.S. wholesale power marketing business. Based on
current equity market values, the new company would rank third in the industry
with a market capitalization of $15.2 billion.
Each shareholder of PECO Energy will have the opportunity to elect to
receive for each PECO Energy share either one new holding company common share
or $45.00 in cash, subject to proration; and each shareholder of Unicom will
have the opportunity to elect to receive for each Unicom share either 0.95 new
holding company common shares or $42.75 in cash, subject to proration. The cash
prices represent a premium of approximately 11% to PECO Energy's and Unicom's
ten-day average trading prices through September 22, 1999.
Based on approximately 182.4 million shares of PECO Energy expected to
be outstanding immediately prior to the close of the transaction (after planned
stock repurchases), PECO Energy shareholders will receive approximately 165.7
million shares in the new holding company and $750.0 million in cash. Based on
approximately 191.3 million shares of Unicom expected to be outstanding
immediately prior to the close of the transaction (after planned stock
repurchases), Unicom shareholders will receive approximately 165.1 million
shares in the new holding company and $750.0 million in cash. At the close of
the transaction, PECO Energy and Unicom shareholders will each own approximately
50% of the new holding company.
The transaction is expected to be tax-free to shareholders to the
extent they receive common stock of the combined company and, in general, cash
received is expected to be taxed as capital gains.
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Corbin A. McNeill, Jr., PECO Energy's chairman, president and chief
executive officer, said, "We are pleased to announce this strategic combination
between PECO and Unicom. This merger catapults the combined company into the top
tier of national energy companies. We believe in the competitive and strategic
value of size and scope which will increase our future earnings growth rates,
creating value for shareholders. We will have a strategic portfolio of low-cost
generation assets and significant transmission and distribution operations
covering two of the top five metropolitan areas. Our combined talent and
technical expertise positions us to provide a broad range of services to our
customers. This merger provides the best opportunity for our two regional
companies to become a national leader in the energy industry. Together, we can
accomplish much more than either company could on a stand-alone basis."
John W. Rowe, Unicom's chairman, president and chief executive officer,
said, "The merger creates world-class generation and power marketing businesses.
It creates a base from which we will build a leading energy delivery business
and establish ourselves as a significant competitor in the emerging retail
energy marketplace. Unicom and PECO are two companies with complementary
strategies. Because the merger provides scale, scope and resources, it allows
the combined company to continue to grow and maximize the benefits of both
strategies -- all in an accretive transaction."
Mr. McNeill said, "Our generation capacity gives us the ability to
provide economically produced power. Furthermore, our power marketing capability
allows us to optimize the value of that capacity in the marketplace. Both PECO
and Unicom are experienced operators of nuclear power plants. We intend to be
the premier nuclear operator in the nation. We also intend to add more clean,
low-cost generation to our energy portfolio."
Mr. Rowe said, "The combined company will continue to strengthen its
transmission and distribution systems and, over time, we expect to expand our
footprint in this essential segment of our business. My immediate priority is,
and must be, bringing Commonwealth Edison's distribution service to levels that
meet those achieved by other metropolitan utilities. We will have made
substantial progress in that effort by the time this merger is consummated.
Thereafter, we are committed to making sure that both our operating utilities,
ComEd and PECO, provide service that satisfies the ever-increasing expectations
of our customers.
"We also intend to use the resources of this combination to offer
related products and services such as distributed generation, infrastructure and
energy services, and telecommunications to a broad base of customers both inside
and outside our service territories," said Mr. Rowe.
Mr. McNeill said, "Under John's leadership, Unicom has rapidly become
one of the most efficient power generators in the nuclear power industry while
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it has significantly improved plant safety performance. All of us at PECO are
eager to work with the Unicom team. The combined skills and experience of PECO
and Unicom will give the merged company what it takes to thrive as our industry
continues to evolve in the next millenium. We will combine the best practices
and talent from each company to create the preeminent energy company for both
generation and distribution. In addition, both companies have a tradition of
active corporate citizenship and strong economic development initiatives. John
and I are both committed to continuing this level of support in the new
company."
Mr. Rowe said, "Combining our large and improving nuclear operations
with PECO's focused generation and power marketing strategy creates one of the
leading value-creation engines in the industry. Corbin and his team have an
aggressive plan and a commitment to operational excellence that has made PECO a
leader in generation. I am confident that with the talent of our combined teams
we will be able to satisfy our customers and create value for shareholders."
The dividend on the new company's stock is anticipated to be $1.69 per
share, which is equivalent to Unicom's current annual dividend, adjusted for the
exchange ratio. Currently, Unicom pays an annual dividend of $1.60 per share and
PECO Energy pays an annual dividend of $1.00 per share.
The companies expect to achieve annual cost savings of approximately
$100 million in the first year after the close of the merger, which grow to over
$180 million by the third year. Sixty percent of these savings will come from
regulated operations and forty percent will come from unregulated operations.
These cost savings are expected to result primarily from eliminating duplicate
corporate and administrative positions and programs and achieving efficiencies
in operations, business processes and purchasing. Based on these cost savings
alone, the transaction is expected to be accretive in the first year after
closing. In addition, as a result of the combination, the companies expect to
achieve substantial revenue enhancements.
The companies will seek to minimize the impact of the merger on the
workforce through a combination of attrition and separation packages. Reductions
due to the merger are expected to be approximately 5% of the consolidated
workforce of 22,500. All union contracts will be honored.
Following the close of the merger, Corbin A. McNeill, Jr. and John W.
Rowe will become co-chief executive officers of the new holding company for a
transition period lasting until December 31, 2003. During the first half of the
transition period, Mr. McNeill will be chairman and Mr. Rowe will be president
of the new holding company. Mr. McNeill will serve as chairman of the board of
directors for the first half of the transition period and Mr. Rowe will serve as
chairman of the executive committee of the board. During the second half of the
transition period, Mr. Rowe will serve as chairman of the board of directors and
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Mr. McNeill will serve as chairman of the executive committee of the board. At
the end of the transition period, Mr. Rowe will become chairman and sole chief
executive officer of the new holding company. Mr. McNeill will remain on the
board of directors.
Mr. McNeill will have the responsibility for overseeing the generation
and power marketing operations of the new company and Mr. Rowe will have the
responsibility for overseeing transmission and distribution operations, as well
as unregulated retail enterprises.
The board of directors of the new holding company will consist of 16
directors; including Messrs. McNeill and Rowe, PECO Energy and Unicom each will
designate eight directors.
The new holding company, to be named at a later date, will be
headquartered in Chicago, and the generation and power marketing operations will
have its headquarters in the Philadelphia region. Unicom's and PECO Energy's
electric and gas utility operations will remain separate subsidiaries of the
holding company and will continue to operate under the names Commonwealth Edison
Company and PECO Energy Company and will maintain their headquarters in Chicago
and Philadelphia. The companies will retain and build upon their existing brand
identities and customer loyalties in their service territories. The new holding
company will be incorporated in Pennsylvania.
The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and the completion of regulatory procedures
before the Pennsylvania Public Utility Commission, the Illinois Commerce
Commission, the Nuclear Regulatory Commission, the Securities and Exchange
Commission (SEC) and the Federal Energy Regulatory Commission. The companies
intend to register the new company as a holding company with the SEC under the
Public Utility Holding Company Act. The companies anticipate that the regulatory
processes can be completed in approximately 12 months.
Wasserstein Perella & Co. and Goldman, Sachs & Co. acted as financial
advisors, and Jones, Day, Reavis & Pogue acted as legal counsel to Unicom
Corporation. Salomon Smith Barney and Morgan Stanley Dean Witter acted as
financial advisors, and Cravath, Swaine & Moore acted as legal counsel to PECO
Energy Company.
Based in Chicago, Unicom Corporation is the parent of Commonwealth
Edison Company, which provides electric service across northern Illinois,
serving approximately 3.4 million customers or 70 percent of the state's
population. ComEd has the largest nuclear fleet in the country, with a total
capacity of 9,400 megawatts from 10 generating units at five sites. In March
1999, Unicom announced the sale of its fossil operations, with a total capacity
of 9,772 megawatts. The sale is expected to close this November. With more than
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$7 billion in revenues in 1998 and nearly 16,000 employees, Unicom is also the
parent of Unicom Enterprises, Inc., the holding company for its unregulated
subsidiaries.
PECO Energy Company is an electric and gas utility with 6,500 employees
serving 1.5 million electric customers in the five-county Philadelphia region
and more than 400,000 natural gas customers. It has aggressively forged into the
deregulated marketplace, trading wholesale power 24 hours a day in 47 states and
Canada, purchasing and operating nuclear generation and establishing unregulated
ventures in retail energy sales, telecommunications and utility infrastructure
management. PECO Energy has set new nuclear performance standards in safety,
capacity factors, refueling efficiency and low operating and maintenance costs,
while producing more than 33 billion kilowatt-hours of nuclear electricity in
1998. PECO Energy also owns and operates coal, natural gas, oil, landfill gas
and hydro generating plants.
This press release contains certain forward-looking statements within the
meaning of the safe-harbor provisions of the Securities Exchange Act of 1934;
these forward-looking statements are subject to various risks and uncertainties.
The factors that could cause actual results to differ materially from the
projections, forecasts, estimates and expectations discussed herein may include
factors that are beyond the companies' ability to control or estimate precisely,
such as estimates of future market conditions, the behavior of other market
participants and the actions of the Federal and State regulators. Other factors
include, but are not limited to, actions in the financial markets, weather
conditions, economic conditions in the two companies' service territories,
fluctuations in energy-related commodity prices, conversion activity, other
marketing efforts and other uncertainties. Other risk factors are detailed from
time to time in the two companies' SEC reports. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this press release. The companies do not undertake any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date of this press release.
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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.
PECO ENERGY COMPANY
\s\ Jean H. Gibson
-----------------------
Jean H. Gibson
Vice President & Controller
September 23, 1999
