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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE aCT OF 1934
for
DYNEGY INC.
an Illinois corporation
IRS Employer Identification No. 74-2928353
SEC File Number 333-84965
1000 Louisiana Street, Suite 5800
Houston, Texas 77002
(713) 507-6400
February 2, 2000
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Item 5. Other Events.
On February 1, 2000, Dynegy Inc., a Delaware corporation since renamed
Dynegy Holdings Inc. ("Old Dynegy"), and Illinova corporation, an Illinois
corporation, merged in a transaction (the "Merger") in which each of Old Dynegy
and Illinova became wholly owned subsidiaries of Dynegy Inc., a newly formed
Illinois corporation (formerly known as Energy Convergence Holding Company)
("New Dynegy"). Dynegy Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of New Dynegy, merged with and into Old Dynegy, and
Energy Convergence Acquisition Corporation, an Illinois corporation and a wholly
owned subsidiary of New Dynegy, merged with and into Illinova pursuant to the
terms of the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
June 14, 1999, as amended, among New Dynegy, Old Dynegy, Dynegy Acquisition
Corporation, Illinova and Energy Convergence Acquisition Corporation.
In the Merger, each share of Old Dynegy common stock, par value $.01
per share, was converted into the right to receive either $16.50 in cash or 0.69
of a share of New Dynegy Class A common stock, no par value per share, which is
registered under Section 12(b) of the Exchange Act. However, only approximately
40% of the shares were able to be purchased resulting in a pro rata cash
distribution to shareholders who elected this option. As a result, the cash
portion paid to holders of Old Dynegy common stock electing cash totaled
approximately $1,087,500,000. Each share of Illinova common stock, no par value
per share, was converted into one share of New Dynegy Class A common stock, no
par value per share. The exchange ratio was determined through arm's length
negotiations between the parties.
Old Dynegy had three large stockholders, NOVA Gas Services (U.S.) Inc.,
an affiliate of BG plc, and Chevron U.S.A. Inc., which collectively owned
approximately 76% of Old Dynegy's outstanding voting stock. Of these
stockholders, NOVA and BG elected to receive the maximum amount of cash possible
and Chevron elected to receive New Dynegy Class B common stock. Because of the
size of NOVA's and BG's ownership positions, some proration of the cash portion
of the consideration occurred.
To the extent that NOVA and BG would have received New Dynegy Class A
common stock in the combination, they instead received New Dynegy Series A
Convertible Preferred Stock. New Dynegy Series A Convertible Preferred Stock is
convertible into New Dynegy Class A common stock at the election of the holder
and is subject to redemption at the election of New Dynegy after three years.
Holders generally are entitled to vote together with holders of New Dynegy Class
A common stock in proportion to the economic interest of such shares. As a
result, NOVA and BG each received $541,802,833.70 in cash and 3,348,888 shares
of New Dynegy's Series A Convertible Preferred Stock. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of New Dynegy,
the holders of New Dynegy Series A Convertible Preferred Stock are entitled to
receive, prior to any distribution of any assets to
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holders of any other class or series of stock, $50 per share plus an amount
equal to all accrued but unpaid dividends on each share. The initial conversion
price of the New Dynegy Series A Convertible Preferred Stock was $51.88.
To the extent that Chevron would have received New Dynegy Class A
common stock in the merger, it received New Dynegy Class B Common Stock.
Additionally, Chevron purchased an additional 8,363,636 shares of New Dynegy
Class B Common Stock for approximately $23.91 per share and an aggregate price
of $200 million.
In general, the terms of the New Dynegy Class B Common Stock provide
for Chevron board representation, certain rights and limitations with respect to
purchases and sales of New Dynegy securities and certain "blocking rights" with
respect to large transactions by New Dynegy, as further described in New
Dynegy's articles of incorporation, bylaws and the Shareholder Agreement among
New Dynegy, Old Dynegy, Illinova and Chevron dated June 14, 1999. In addition,
the terms of the Merger require that Chevron, should its ownership interest ever
exceed 40% of New Dynegy's equity securities, offer to purchase the remaining
equity securities of New Dynegy in accordance with established procedures.
The shareholders of Old Dynegy and Illinova approved the Merger at
special meetings held on October 11, 1999.
A description of the closing of the Merger is contained in the
February 2, 2000 press release of New Dynegy, attached as Exhibit 99.1 and
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
99.1 *Press Release of New Dynegy dated February 2, 2000.
*filed herewith.
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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.
DYNEGY INC.
Date: February 2, 2000 By: /s/ Kenneth E. Randolph
_____________________________________
Kenneth E. Randolph
General Counsel and Secretary
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Feb. 2, 2000
Media: M.A. Shute John Sousa
(713) 767-8545 (713) 507-3936
Analyst: Margaret Nollen Katherine Richardson
(713) 767-8707 (713) 767-8368
DYNEGY-ILLINOVA MERGER COMPLETED
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HOUSTON (FEB. 2, 2000) - Dynegy Inc. and Illinova Corp. today announced the
completion of the previously announced merger of the companies, creating a new
combined entity named Dynegy Inc. (NYSE: DYN).
The transaction creates a company with a total market capitalization of
more than $10 billion. The company has interests in power plants with more than
14,000 megawatts (MW) of domestic generating capacity, average worldwide natural
gas sales of more than 10 billion cubic feet per day (Bcf/d) and more than 1.4
million retail customers. With the completion of the merger, the combined
company has more than $12 billion in assets and $22 billion in projected annual
revenues from energy operations throughout North America and Europe. Dynegy
will have approximately 145 million shares of common stock outstanding, with
approximately 60 percent of those shares - or approximately $4 billion of public
float as of today - trading on the NYSE under the DYN ticker symbol. Illinois
Power will continue as a Decatur, Ill.-based subsidiary of Dynegy.
"The pace at which this merger has been completed reflects the companies'
strong natural fit and ability to work together to achieve the large potential
we see in the future for our shareholders," said Chuck Watson, chairman and
chief executive officer of Dynegy Inc. "Transition teams from both companies,
collaborating since June, have successfully integrated the management team,
giving us confidence that we will achieve the synergy estimates of the merger.
We have significantly strengthened our competitive position across the entire
convergence value chain - from power
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Dynegy-Illinova Merger Completed
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generation to wholesale and retail marketing and trading of both power and gas."
"Illinois Power's customers will benefit from increased access to
reliable, competitively priced energy supplies and solutions tailored to their
energy needs, delivered by a company with greater financial strength and
flexibility than Illinois Power had on a stand-alone basis," said Larry
Altenbaumer, Illinois Power president. "This merger is a transforming event for
Illinois Power and a strategic move that opens new opportunities for Dynegy," he
added.
Transaction Terms
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The merger was accomplished through the formation of a new corporation,
which acquired all of the stock of both predecessor companies for a combination
of stock and cash. At their election, previous Dynegy shareholders received, in
exchange for each share of Dynegy common stock, either 0.69 shares of new
company common stock or $16.50 in cash consideration per share; previous
Illinova shareholders exchanged their shares for new company common stock on a
share-for-share basis. Following the transaction, previous Dynegy shareholders
own approximately 51% of the new company.
Also as part of the transaction, NOVA Chemicals and BG plc, which had
owned a combined approximate 50 percent interest in Dynegy, each exchanged their
holdings for approximately $542 million in cash and 3,348,888 shares of a new
convertible preferred stock. Chevron U.S.A., which had an approximate 29
percent interest in Dynegy, converted its holding to stock and invested $200
million of new equity capital in the combined company thereby maintaining its
approximate 29 percent ownership interest in the new company.
Initial Merger Results
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The merger is expected to be accretive to earnings in the first year, and
will provide improved fuel supply reliability and price stability in utility
operations and significant new operating leverage in energy convergence market
opportunities with the addition of 3,800 MWs of unregulated power located in the
Midwest:
. Earnings Impact - Annual pre-tax revenue enhancements and cost savings
totaling between $125 million and $165 million are projected to result
from the merger, approximately two-thirds from revenue enhancements
achieved by optimizing Illinova's existing portfolio of generation
assets, and approximately one-third from cost savings, including
immediate and staged eliminations of more than 550 members of the
combined 5,500-person workforce; elimination of duplicate corporate
programs and activities; improved operating efficiencies; and lower
capital costs.
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Dynegy-Illinova Merger Completed
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. Convergence Opportunities - Dynegy will increase utilization and
marketing of Illinova's 3,800 MWs of Midwest generation capacity in
excess of local market requirements and will identify opportunities to
expand Dynegy's marketing and trading operations through access to the
combined company's customer base. The new company is expected to
generate approximately 70 percent of its earnings and cash flow from
non-regulated activities in 2000, a level expected to increase as the
company invests in new generation assets as part of an approximate $5
billion corporate capital expenditure program over the next five
years.
. Reliability of Supply - Retail customers gain higher reliability and
cost-effectiveness from the application of Dynegy's marketing, trading
and risk management capabilities to Illinois Power's indigenous
generation capacity and expanded access to generation capacity from
other markets across the country.
Long-Term Competitive Advantages
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"Dynegy's objective is to own, control or manage 70,000 megawatts of
generating capacity within the next four years. The addition of Illinova's
Midwest generation portfolio provides Dynegy with the additional capacity the
company has been seeking to accelerate its energy convergence strategy," added
Watson. "By successfully executing our strategic plan to leverage Dynegy's
power and natural gas marketing and trading capabilities with ownership or
control over strategically located generation assets, we will maintain our
leadership position in the energy convergence business."
Dynegy Inc.
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Upon closing, Chuck Watson, chairman and chief executive officer of Dynegy
Inc., retained that title in the combined company. Stephen W. Bergstrom,
president and chief operating officer; John U. Clarke, executive vice president;
and Kenneth E. Randolph, senior vice president and general counsel; along with
Watson, comprise the company's office of the chairman. Charles E. Bayless,
former chairman, president and chief executive officer of Illinova, continues as
a non-executive director of the combined company. The board of the new company,
which is incorporated in Illinois and headquartered in Houston, Texas, consists
of seven members of the former Illinova board and seven members of the previous
Dynegy board, including three designees of Chevron.
The merger has been structured to provide Dynegy with a strong balance
sheet and the financial strength necessary to execute its strategic plan. A new
holding company, named Dynegy Inc., has been formed as part of the merger to
hold the stock of Illinova Corp. and the stock of the
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Dynegy-Illinova Merger Completed
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company formerly known as Dynegy Inc. The corporation previously known as Dynegy
Inc. has been renamed Dynegy Holdings Inc. and will continue to own Dynegy
Marketing and Trade and Dynegy Midstream Services, L.P. The indebtedness
incurred to consummate the merger is expected to be substantially retired by the
end of 2000, primarily through a combination of sales of less strategic assets
and an equity offering of about $250 million.
Illinova will pay its final common stock dividend of $0.31 per share on
February 16, 2000 to shareholders of record on February 1, 2000. It is
anticipated that the combined company will adopt an initial annual dividend of
$0.60 per share, payable quarterly subject to financial condition, results of
operations and capital requirements.
Lehman Brothers, Inc. acted as financial advisor and provided a fairness
opinion to Dynegy. Chase Securities Inc. and Berenson Minella & Co. acted as
financial advisors and provided fairness opinions to Illinova.
Dynegy Inc. is one of the country's leading marketers of energy products
and services. Through its leadership position in power generation and marketing,
gathering, processing, and transportation of energy, the company provides energy
solutions to its customers primarily in North America and the United Kingdom.
Dynegy's principal businesses - Energy Convergence, Liquids and Transmission and
Distribution - operate through the following subsidiaries:
. Dynegy Marketing and Trade, the company's power generation and power and
natural gas marketing and trading subsidiary, focuses on energy convergence.
This includes the marketing, trading and arbitrage opportunities that exist
among power, natural gas and coal that can be enhanced by the control and
optimization of related physical assets, as well as the marketing of energy
products and services to the retail sector through Dynegy Energy Services and
its alliances with leading utility companies.
. Dynegy's natural gas liquids subsidiary, Dynegy Midstream Services, Limited
Partnership, includes North American midstream liquids operations, global
natural gas liquids transportation and marketing operations.
. Illinois Power, a regulated subsidiary of Dynegy based in Decatur, Ill.,
serves more than 650,000 natural gas and electricity customers in a 15,000-
square-mile area in southern Illinois.
This press release includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although Dynegy believes that its expectations are
reasonable, it can give no assurance that these expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include the need
to acquire additional generation capacity on satisfactory terms to fulfill
growth expectations; competitive and other factors that could make
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Dynegy-Illinova Merger Completed
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anticipated revenue enhancements difficult to achieve, the difficulties inherent
in combining two businesses and reducing costs; fluctuations in commodity prices
for natural gas, electricity, natural gas liquids, crude oil, or coal;
competitive practices in the industries in which Dynegy competes; operations and
systems risks; environmental liabilities, which are not covered by indemnity or
insurance; general economic and capital market conditions, including
fluctuations in interest rates; and the impact of current and future laws and
governmental regulations (particularly environmental regulations) affecting the
energy industry in general, and Dynegy's operations in particular.
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For more information about Dynegy or the merger, please visit its web site at
www.dynegy.com.
