Joint News Release
Public Service Co. of Colorado Southwestern Public Service Company
1225 17th St. P.O. Box 1261
Denver, Colorado 80202 Amarillo, Texas 79710
(303) 294-8900 (806) 378-2121
For Release 6:30 MDT; 7:30 CDT -- August 23, 1995
PSCo and SPS to Combine in Merger of Equals
Utilities Join to Compete in Evolving Energy Industry
DENVER, COLO. AND AMARILLO, TEXAS -- Southwestern Public
Service Company (NYSE:SPS), based in Amarillo, Texas, and
Denver-based Public Service Co. of Colorado (NYSE:PSR)
announced Wednesday that they have entered into a definitive
merger agreement to combine two low-cost utilities and form a
new energy services holding company that will cover one of the
largest geographic areas in the country.
This "merger of equals" - which is subject to approval by
shareholders of both companies and various regulatory
authorities - was unanimously approved by both companies'
boards of directors in separate meetings Tuesday.
Bill D. Helton, SPS chairman and chief executive officer,
and Del Hock, PSCo chairman and chief executive officer, said
the new company will build on the strengths of each partner.
"We are extremely pleased with the natural synergies and
resulting savings of combining our two companies, and we will
be very well-positioned to succeed in our changing electric
utility industry," Hock said.
Helton said the two companies are a natural fit and
complement each other in many areas. "As both companies
considered whether a merger was the right move, both wanted to
ensure joining with a company with low rates. We found that
in each other. The combination will result in one of the
premier low-cost energy providers of the future."
Based on fiscal 1994 results, the new holding company
will have combined annual revenues of approximately $3 billion
and total assets of approximately $6 billion. The companies
expect to save approximately $770 million in the first 10
years after the merger is completed.
Upon completion of the merger, holders of PSCo common
stock will receive one share of the new holding company stock
for each share of PSCo stock. Holders of SPS common stock
will receive 0.95 shares of the new holding company's stock
for each share of SPS stock. As of August 4, 1995, PSCo has
63.1 million common shares outstanding, and SPS has 40.9
million common shares outstanding.
Based on the number of common shares outstanding, PSCo
shareholders will own 61.9 percent of the common equity of the
new holding company, while SPS shareholders will own 38.1
percent. The current combined market capitalization of PSCo
and SPS will result in a $3.2 billion market capitalization of
the new holding company.
It is anticipated that the holding company will adopt the
SPS dividend payment level, adjusted for the exchange ratio.
Based on the exchange ratio, the pro forma dividend for the
new company will be $2.32 per share on an annual basis,
following completion of the merger.
Debt holders and preferred stockholders will continue
with their present holdings under existing terms.
According to Hock and Helton, the anticipated $770
million savings during a 10-year period will allow the
operating companies to provide "very competitive" electricity
rates in both service areas for many years to come. They said
specific rate plans would be filed with appropriate state
public utilities commissions and the Federal Energy Regulatory
Commission in the near future.
According to Helton, PSCo adds a faster-growing service-
area economy, natural gas utility operations, and innovative
approaches to information technology and energy services. SPS
brings strong generation and engineering, diversity of power
plants and fuels, and success with wholesale markets and non-
regulated generation projects.
Hock noted that customers also would benefit from the
adoption of the "best practices" of each company, the sharing
of generating capacity and increased leverage in purchasing.
"We will have lower fuel costs for generation; we can defer
additional generating capacity; and we can reduce total
inventories," Hock said.
The new company will be a registered public utility
holding company, which will be the parent company for both
Public Service Co. of Colorado and Southwestern Public Service
Company. The corporate offices of the holding company will be
in Denver, with significant operating functions based in
Amarillo. SPS and PSCo will maintain their company
headquarters in Amarillo and Denver, respectively. The board
of the new holding company will consist of eight current
directors from PSCo and six current directors from SPS.
Upon the expected completion of the merger in early 1997,
PSCo Chairman and Chief Executive Officer Del Hock, who
currently is 60 years old, will retire. SPS Chairman and
Chief Executive Officer Bill D. Helton, 56, will become the
company's chairman and chief executive officer. PSCo
President and Chief Operating Officer Wayne H. Brunetti, 52,
will become vice chairman, president and chief operating
officer of the new company.
On June 30, 1999 (or two-and-a-half years after the
merger is completed, whichever comes later), Brunetti will
assume the responsibilities of CEO, and Helton will remain
chairman. On May 31, 2001, Helton will retire, and Brunetti
will add the responsibilities of chairman of the board.
The merger is subject to approval by the shareholders of
both companies. The merger is also subject to approval or
regulatory review by the Federal Energy Regulatory Commission,
the Securities and Exchange Commission, the Federal Trade
Commission, the Department of Justice, the Nuclear Regulatory
Commission and state regulators in Texas, Colorado, New
Mexico, Wyoming, Oklahoma and Kansas. The companies have
received fairness opinions from Barr Devlin Associates for
PSCo and Dillon, Read & Co. for SPS.
Brunetti said the merger agreement has the key element to
succeed. "I have long believed that if you can satisfy
customers, you will be successful. This merger is
unquestionably a step that enhances our ability to give our
customers what they want and what they want most of all - low
price," Brunetti said. "Price is the entry point into today's
energy market."
Brunetti said a transition team - made up of
representatives of both companies - would be responsible for
making recommendations to cut costs and take advantage of the
natural synergies. He said he expected employee reductions
would be approximately 8 percent of the consolidated work
force of both companies. That figure equals 550 to 600
positions out of the combined work forces of approximately
7,000 employees.
"We pledge to keep employees, customers and shareholders
informed throughout this transition period," Brunetti said.
After the merger, a new transmission line will be built
that connects SPS with PSCo through a high voltage, direct-
current interconnection.
Helton said the interconnection will enhance competition
in the region's wholesale power markets and will make the
generation and fuel savings possible.
Upon completion of the merger, the new company will serve
approximately 1.5 million electric customers in Colorado,
Texas, New Mexico, Wyoming, Oklahoma and Kansas. The company
also will provide natural gas service to 933,000 customers in
Colorado and Wyoming.
SPS, based in Amarillo, is a regional electric utility
that primarily provides service to a population of about one
million people in a 52,000-square-mile area comprising eastern
and southeastern New Mexico, the South Plains and Panhandle of
Texas, the Oklahoma Panhandle and southwestern Kansas. The
company also made wholesale power sales to other electric
systems in 15 states last year.
SPS's generating capacity is 52 percent coal-fueled and
48 percent from other fuels, primarily natural gas. The
company has 12 power plants throughout its system.
SPS subsidiary Utility Engineering Corporation provides
engineering, design and construction management services to a
variety of industries. Another subsidiary, Quixx Corporation,
is involved in a number of non-utility power generation
projects, both nationally and internationally.
Public Service Co. of Colorado is an electric, natural
gas and thermal energy utility, which serves 32,000-square-
mile area and a population of approximately 2.8 million people
in Colorado and in the Cheyenne, Wyo. area. Headquartered in
Denver, the company operates eight steam-electric plants, nine
hydroelectric facilities, a downtown Denver thermal energy
service and an extensive natural gas system.
PSCo's fuel for generation is approximately 99 percent
coal and 1 percent natural gas. Hydroelectric power plays a
role in this mix during the warmer months of the year.
PSCo's subsidiary, e prime, was started in January 1995
to provide value-added, energy-related products and services
to energy-using customers and to selected segments of the
utility industry in the United States. Another subsidiary,
Natural Fuels Corp., is building an infrastructure for natural
gas vehicles, and it sells compressed natural gas as a
transportation fuel.