BEC ENERGY AND COMMONWEALTH ENERGY SYSTEM
AGREE TO $4.4 BILLION COMBINATION
Merger Creates Premier Energy Delivery System in New England
Boston, MA and Cambridge, MA (December 7, 1998) - BEC Energy [NYSE: BSE] and
Commonwealth Energy System ("COM/Energy") [NYSE: CES] today announced that
their boards of trustees have approved a definitive agreement providing for a
merger in which the total consideration would be a combination of cash and
stock in a newly-formed holding company. The combined company will have a
total market capitalization of approximately $4.4 billion ($2.6 billion in
equity; $1.7 billion in net debt; $0.1 billion in preferred stock). The $2.6
billion equity value is the largest of any New England utility. The
combination is anticipated to be accretive to earnings per share in the first
full year following closing.
The combined company will serve about 1.3 million customers, including
approximately 1,040,000 electric customers in 81 communities and 240,000 gas
customers in 51 communities.
Thomas J. May, chairman, president and chief executive officer of BEC Energy,
said, "BEC Energy and COM/Energy share a common vision -- to be the premier
energy delivery company in our region. At BEC Energy, we are focusing our
efforts on the transmission and distribution of energy. We believe that
expanding our customer base is the key to success in the delivery business.
Our goal is to grow to two million customers, enabling us to further enhance
customer service.
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"The new company allows us to broaden our customer base, and to capture the
savings opportunities that the combined operations can produce," Mr. May
added. "We will continue to make customer service the top priority. Our
expanded platform will allow the combined company to invest more effectively
in technology and infrastructure which will lead to higher levels of customer
service."
Russell D. Wright, president and chief executive officer of COM/Energy, said,
"We are delighted with today's announcement. BEC Energy and COM/Energy have
worked together for many years and our merger maintains and, indeed,
strengthens the commitments we both have to corporate citizenship and our
customers. Our service territories will continue to be served by skilled and
dedicated people who know and understand local needs. In addition, the
combination will enhance the local and regional economies through more stable
rates.
"The new company will be financially strong and strategically focused on the
delivery of superior service to its customers, including competitive energy
suppliers. Employees will become part of a larger, more vibrant energy
delivery company. We are confident that this strategic combination will be
beneficial for our customers, our employees and our shareholders," concluded
Mr. Wright.
Under the terms of the agreement, a new holding company will be created and
both BEC Energy and COM/Energy will exchange their shares for a combination of
stock in the holding company and cash. The cash portion of the transaction is
expected to be financed primarily through current cash balances and internally
generated funds. BEC Energy stockholders may elect to receive 1 share of the
holding company's common stock or $44.10 in cash for each BEC Energy share
they own. The cash price represents a 5% premium to BEC Energy's closing
stock price on December 4, 1998. COM/Energy stockholders may elect to receive
1.05 shares of the holding company's common stock or $44.10 in cash for each
COM/Energy share they own, representing a 17% premium to COM/Energy's closing
price on December 4, 1998.
Under the merger agreement, $200 million in cash will be allotted to BEC
Energy stockholders and $100 million in cash will be allotted to COM/Energy
stockholders. In the event that stockholders of BEC Energy or COM/Energy do
not elect to receive all of the shares of the combined company's common stock
allotted, the shares will be proportionately allocated to those stockholders
who have elected to receive cash. In the event that stockholders of BEC
Energy and COM/Energy, collectively, do not elect to receive all of the cash
allotted, cash will be allocated to those stockholders who have elected to
receive shares of the combined company's common stock.
The transaction is expected to be tax-free to stockholders to the extent they
receive common stock of the combined company. The combination is expected to
be accounted for using the purchase method of accounting.
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Based on 47.2 million shares of BEC Energy and 21.5 million shares of
COM/Energy currently outstanding, BEC Energy stockholders will receive
approximately 42.6 million shares in the new company and $200 million in cash
and COM/Energy stockholders will receive approximately 20.2 million shares and
$100 million in cash. At the close of the transaction, BEC Energy
stockholders will own approximately 68% of the combined company and COM/Energy
stockholders will own approximately 32%.
It is anticipated that the initial annual dividend for the new company's
common stock would be equal to BEC Energy's annual dividend, currently $1.88
per share. For COM/Energy stockholders, this represents a 22 percent increase
in annual dividend on an as-converted basis.
The new company anticipates net savings related to the merger of approximately
$500 million over a ten-year period from the elimination of duplication in
corporate and administrative programs, greater efficiencies in operations and
business processes, increased purchasing efficiencies and the combination of
the two workforces. Employee reductions due to the merger are expected to be
about 300 positions out of a total workforce of approximately 3,900. The new
company expects to achieve reductions through a variety of programs which
would include hiring freezes, attrition and voluntary separation. All union
contracts will remain in effect.
The new company will be an exempt public utility holding company which will be
the parent of Boston Edison Company and Commonwealth Electric Company,
Cambridge Electric Light Company, Canal Electric Company, Commonwealth Gas
Company, and the unregulated affiliates of BEC Energy and COM/Energy. The
corporate headquarters of the holding company will be in Boston and the
company will have a significant presence throughout Eastern Massachusetts.
Initially the board of directors of the new holding company will consist of
the trustees of each company at the time of the merger.
Upon completion of the merger, Thomas J. May, currently chairman, president
and chief executive officer of BEC Energy, will become chairman and chief
executive officer of the new company. Russell D. Wright, president and chief
executive officer of COM/Energy, will become president and chief operating
officer of the new company and will serve on the new company's board of
directors.
A service quality plan and a rate plan will be filed with the Massachusetts
Department of Telecommunications and Energy (DTE) within 30 days. The service
quality plan will include service performance standards and service quality
guarantees. The rate plan will provide for price stability for all customers.
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The merger is conditioned, among other things, upon the approvals of each
company's shareholders and various regulatory agencies, including the DTE's
approval of the rate plan and the approvals of the Federal Energy Regulatory
Commission (FERC), the Nuclear Regulatory Commission (NRC), and the Securities
and Exchange Commission (SEC). Given that all operations are within
Massachusetts, the companies anticipate that regulatory approvals can be
obtained by mid-1999.
Goldman, Sachs & Co. acted as financial advisor and provided a fairness
opinion to BEC Energy. SG Barr Devlin acted as financial advisor and provided
a fairness opinion to Commonwealth Energy System.
BEC Energy intends to continue its previously announced stock repurchase
program of 4 million shares.
Commonwealth Energy System is a $1 billion holding company based in Cambridge,
Massachusetts. Its regulated subsidiaries include Commonwealth Electric
Company, Cambridge Electric Light Company, Canal Electric Company and
Commonwealth Gas Company, together serving 600,000 customers in Eastern
Massachusetts.
BEC Energy, through its wholly owned subsidiary Boston Edison Company,
provides electricity to about 670,000 customers in the city of Boston and 39
other cities and towns in Eastern Massachusetts.
This press release includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements reflect numerous assumptions, and involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially are: the ability of the combined company to successfully reduce its
cost structure and realize the economies expected to be generated by the
merger, including benefits from consolidation of the companies' workforces,
the effects of the continued regulatory orders and legislative changes in
connection with utility industry restructuring; the effects of the changes in
economic conditions, weather conditions, growth in the service territories of
the two companies, interest costs and the other risks detailed from time to
time in BEC Energy's and Commonwealth Energy System's SEC reports. See the
Annual Reports of each of BEC Energy and Commonwealth Energy System for the
years ended December 31, 1997.
Note to Editors: Today's news release, along with other news about BEC Energy
and Commonwealth Energy System, is available on the Internet at
http://www.bostonedison.com and http://www.comenergy.com.
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