News Release
FOR RELEASE 6:00 AM - 10/23/00
Contact: Darcel G. Kimble
410-234-7436
[email protected]
Michael W. Delaney
410-234-5466
[email protected]
Kathleen Baum (Goldman Sachs)
212-902-0348
[email protected]
Constellation Energy Group Announces Strategic Moves:
Business Separation Plan Adopted;
Goldman Sachs to Become Equity Investor
in Constellation Energy Group's Merchant Energy Company; and
Company to Reduce Common Stock Dividend Effective April 2001
Baltimore, MD -- October 23, 2000 -- Constellation Energy Group (NYSE: CEG)
announced today several initiatives that will advance its goals to quickly grow
its merchant energy business and provide premier electric and gas delivery and
energy products and services to Central Maryland consumers. The initiatives
include the separation of Constellation Energy Group's merchant energy business
(which includes wholesale generation and power marketing) from its retail
services business; an equity investment by Goldman Sachs in the merchant energy
business; and a change in the dividend policy aimed at financing rapid growth.
Business Separation Strategy
----------------------------
Over the past few years, Constellation Energy Group has transformed itself from
a Maryland utility into a leading merchant energy company. The business
separation will create two premier stand-alone and publicly traded energy
companies headquartered in Maryland. One will be a leading national merchant
energy business, Constellation Energy Group, engaged in wholesale power
marketing and generation in North America. The other will be a regional retail
energy
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and energy services company, BGE Corp., that will include BGE, which has a
184-year tradition of serving customers in Central Maryland. The separation will
be accomplished through a tax-free spin to shareholders and is expected to be
completed by mid-to-late 2001.
The business separation plan is intended to enhance shareholder value. The
separation of the businesses will illuminate the specific investment advantages
of each emerging company and allow investors to make decisions based on a
clearer assessment of each company's balance of risk and return. Constellation
Energy Group and BGE Corp. will also be better able to focus on their respective
business and market opportunities.
"Constellation Energy Group is creating two strategically strong energy
companies that will both be headquartered in Maryland - each one will be an
attractive investment opportunity in the energy sector," said Mr. Christian H.
Poindexter, the Chairman and CEO of Constellation Energy Group.
The Merchant Energy Business
----------------------------
The merchant energy business will own all of our unregulated power generation
assets and the merchant energy trading and marketing operations, including the
Calvert Cliffs Nuclear Power Plant, the first nuclear plant in the nation to
achieve license renewal. This combination of assets contributes to a diverse
fuel portfolio with a low cost position enabling the company to grow through a
combination of development and acquisition.
The merchant energy business has a goal of establishing control of a portfolio
of over 30,000 megawatts of electric generation facilities by 2005. The closing
of the transaction with Goldman Sachs and the separation of the merchant energy
business and the retail services business are unlikely to conclude early enough
in 2001 to have any material impact on earnings for Constellation Energy Group
for that year. For 2002 and beyond, Constellation Energy Group is targeting
annual earnings growth for the newly independent merchant energy company in the
range of 20-to-25%.
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BGE Corp.
---------
Upon the separation, the holding company of the retail services business will
become BGE Corp. BGE Corp. will be the parent of BGE, as well as the competitive
retail companies that offer value-added energy services and products for home
and commercial use. "BGE will continue to thrive as a strong regional utility
with a core regulated energy delivery business serving 1.1 million electricity
customers and approximately 600,000 gas customers," said Mr. Poindexter. "BGE's
profitable and predictable core business will be augmented by its several
competitive affiliates, which provide energy services to customers in Central
Maryland and throughout the mid-Atlantic region."
BGE Corp. will be chaired by Edward A. Crooke, who is returning to active
service after taking early retirement on January 1, 2000 from his position of
Vice Chairman of Constellation Energy Group. Mr. Crooke has remained active on
Constellation Energy Group's Board of Directors since retirement and has
continued to be instrumental in shaping the company's growth and retail
strategies. Mr. Crooke will resume his position of Vice Chairman of
Constellation Energy Group until separation. He will then become Chairman,
President and CEO of BGE Corp., the holding company for our retail services
business.
"Ed Crooke has been my partner in managing BGE and Constellation Energy Group
for many years," said Mr. Poindexter. "He deserves a great deal of credit for
the success we have achieved. I am delighted that he has agreed to reapply his
skills to the smooth execution of our separation plan and the initial leadership
of BGE Corp."
Frank O. Heintz will continue to serve as President and CEO of Baltimore Gas and
Electric Company (BGE), our electric and gas delivery business.
Goldman Sachs
-------------
Goldman Sachs will become an equity owner of up to 17.5% of our merchant energy
business, which will be known as "Constellation Energy Group" after the
separation. Goldman Sachs is expected to contribute $250 million and certain
assets related to our power marketing and trading business. In addition, Goldman
Sachs will assist in developing Constellation Energy Group's natural gas trading
and marketing operations.
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"With the combined knowledge and experience of Constellation Energy Group and
Goldman Sachs, coupled with our physical assets, we aim to be among the handful
of top players in the merchant energy sector," said Mr. Poindexter.
Goldman Sachs' relationship with Constellation Energy Group in the power
marketing business dates back to 1997. At that time, Goldman Sachs entered into
an exclusive arrangement with our power marketing, trading and risk management
business, Constellation Power Source, to provide risk management and power
marketing services.
"Goldman Sachs is always seeking opportunities to maximize the value of our
investments and our relationships with strategic partners," said Timothy
O'Neill, Managing Director of Goldman Sachs in the Fixed Income, Currencies and
Commodities Division. "We are excited about the opportunity to invest in a
dynamic, growing company in a rapidly expanding sector of the energy
marketplace."
Goldman Sachs' investment represents an exclusive North American power business
arrangement with Constellation Energy Group. This will complement Constellation
Energy Group's existing merchant energy skills and continue to leverage Goldman
Sachs' significant experience in trading and risk management. We will offer
employment to current Goldman Sachs' professionals working within our merchant
energy business, as a unified corporate platform for growth is created.
On October 20, 2000, the board named two Co-Presidents of Constellation Energy
Group: Charles W. Shivery, President and CEO of Constellation Power Source
Holdings, Inc., the company's current merchant generation business; and Eric P.
Grubman who is joining Constellation Energy Group from Goldman Sachs. At Goldman
Sachs, Mr. Grubman was a senior level investment banker with broad experience in
mergers and acquisitions and the energy industry. Mr. Poindexter will continue
to serve as Chief Executive Officer and Chairman of the Constellation Energy
Group Board of Directors. All three of these executives will continue in these
positions in the merchant energy business following the business separation.
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"We are truly generating opportunities with this strategic move," said Mr.
Poindexter. "Constellation Energy Group's knowledge of the electric markets and
assets in the generation sector combined with Goldman Sachs' legendary
entrepreneurial spirit and expertise will be a powerhouse in the challenging
world of merchant energy."
"This co-leadership team will bring together individuals with strong,
complementary skills," Mr. Poindexter added. "Chuck's operational and financial
knowledge enabled him, within three years, to grow a fledgling merchant energy
business into one of the top ten power marketers in the country. Eric's skills
in investment banking and energy mergers and acquisitions will enable us to grow
quickly to meet our goals."
Also last Friday the Board elected Robert J. Hurst, Vice Chairman of the Goldman
Sachs Group, Inc., to Constellation Energy Group's Board effective immediately.
Two Managing Directors from the commodities trading side of Goldman Sachs,
Timothy J. O'Neill and Richard M. Ruzika, will assume positions on the merchant
energy company's Board of Directors after closing of the transaction with
Goldman Sachs.
Change in Dividend Policy
-------------------------
Constellation Energy Group will maintain its current common stock dividend
through January 2001. In a move closely aligned with its separation plan,
effective April, 2001, Constellation Energy Group's annual dividend is expected
to be set at $.48 per share. After the business separation, BGE Corp. expects to
pay initial annual dividends of $.48 per share, which is similar to other
premier companies in the retail energy sector. Constellation Energy Group, as a
growing merchant energy company, expects to initially reinvest its earnings and
not pay a dividend in order to fund its aggressive growth plans.
Timing
------
The business separation plan and the Goldman Sachs transaction will be reviewed
by the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission,
the Department of Justice, the Maryland Public Service Commission, and the
Pennsylvania Public Utility Commission. The plan is not subject to approval by
shareholders. The Maryland electric deregulation settlement agreement will
remain intact.
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After receipt of regulatory approvals and tax rulings, Constellation Energy
Group expects to close on the Goldman Sachs transaction and separate the
businesses. This would take place as soon as possible and is expected to be
completed by mid-to-late 2001. The distribution of shares to shareholders would
finalize the business separation. At that time, holders of shares of stock in
Constellation Energy Group will own shares of both the new Constellation Energy
Group and BGE Corp.
Lehman Brothers acted as financial advisor to Constellation Energy Group and
LeBoeuf, Lamb, Greene, & MacRae L.L.P. acted as legal counsel.
Constellation Energy Group is a holding company whose subsidiaries include
energy related businesses focused mostly on power marketing, generation, and
portfolio management, plus BGE, which provides service to more than 1.1 million
electric customers and more than 590,000 natural gas customers in Central
Maryland. Constellation Energy Group reported combined revenues in 1999 of
nearly $3.8 billion and mid-year 2000 assets of $10 billion.
Further information concerning the business separation plan and Goldman Sachs'
investment is set forth in Constellation Energy Group's Current Report on Form
8-K filed with the Securities and Exchange Commission on October 23, 2000.
Analyst Conference Call Information:
------------------------------------
Constellation Energy Group is hosting an analyst conference call today, October
23, 2000 at 10:00 a.m. ET to discuss these strategic initiatives. Investors who
wish to participate should call 1-888-769-8757. The conference leader's name is
Kevin Miller, and the passcode is Miller. Both the leader name and the passcode
are required in order to join the conference call.
A tape recording of the conference call will be available for 24 hours following
the conference call. Investors may access the recording by dialing
1-888-566-0135.
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Note to Editors
---------------
All journalists are welcome to participate in this analyst conference call.
However, there will be a conference call for journalists at 1:00 p.m. today,
October 23, 2000. A media advisory under separate cover will have all pertinent
information regarding the media conference call.
Forward Looking Statement
-------------------------
Statements are made in this press release that are considered forward-looking
statements within the meaning of the Securities Exchange Act of 1934. Sometimes
these statements will contain words such as "believes," "expects," "intends,"
"plans," and other similar words. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other important factors
that could cause actual performance or achievements to be materially different
from those projected. These risks, uncertainties and factors include, but are
not limited to: ability to obtain all regulatory approvals necessary to allow
Goldman Sachs to invest in the merchant energy business and complete the
separation of the merchant energy business from the retail services business;
satisfaction of all conditions precedent to the transaction with Goldman Sachs;
general economic, business and regulatory conditions; energy supply and demand;
competition; federal and state regulations; availability, terms and use of
capital; nuclear and environmental issues; weather; implications of the Order
issued by the Maryland PSC regarding implementation of customer choice including
any appeals of the order; commodity price risk; operating generation assets in a
deregulated market without the benefit of a fuel rate adjustment clause; loss of
revenues due to customers choosing alternative suppliers; higher volatility of
earnings and cash flows; increased financial requirements of nonregulated
subsidiaries; inability to recover all costs associated with providing electric
retail customers service during the electric rate freeze period; and
implications from the transfer of BGE's generation assets and related
liabilities to nonregulated subsidiaries of Constellation Energy Group,
including the outcome of any appeal of the PSC order regarding the transfer.
Given these uncertainties, undue reliance should not be placed on these
forward-looking statements. Please see periodic reports filed with the
Securities and Exchange Commission for more information on these factors. These
forward-looking statements represent estimates and assumptions only as of the
date of this press release, and no duty is undertaken to update any
forward-looking statements to reflect new information, events or circumstances
after the date of this press release or to reflect the occurrence of
unanticipated events.
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