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Exhibit 99.1
MERGER TO CREATE LARGEST NW COMBINATION ENERGY COMPANY
SEATTLE - Puget Sound Power & Light Company (NYSE: PSD) and Washington
Energy Company (NYSE: WEG) announced today that they have signed a definitive
agreement to merge the two organizations into a single new company. The
strategic merger of equals, unanimously approved today by the boards of both
companies, would create the largest combination energy company in the Northwest
and would generate savings of approximately $370 million over the next ten
years.
STRATEGIC RATIONALE
"We are convinced that the strategic concept we are following by
uniting our electric and natural gas businesses will be seen as a model in the
years ahead," said Puget Power President and CEO Richard R. Sonstelie. "This
merger greatly expands the initiatives our companies began two years ago to
work together on joint operations within our shares service territory. We have
developed a fine relationship at many levels within out companies and have
realized that the only effective way to unlock all of the benefits of joint
operations is to form a single company."
With the two companies' overlapping service area and out experience in
joint operations, this merger makes good, common sense," agreed Washington
Energy Company Chairman, CEO and President William P. Vititoe. "Our shares
service territory provides the platform for combining our two organizations
into one lower-cost company. The combination furthers our business vision of
being able to meet customers' total energy needs in the best manner possible by
creating a single provided of multiple forms of energy. It is this vision that
will drive the business of the new company forward, both within its existing
service territory and beyond."
Based on a current combined market capitalization of approximately
$1.9 billion, serving a population of more than 3 million, with 830,000
electric and
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468,000 gas customers, the resulting company would be the largest electric and
gas utility company in the Northwest.
INVESTOR CONSIDERATIONS
The agreement calls for shares in Washington Energy Company be
exchanged for .860 shares of Puget Power stock. The merged company would then
be renamed, although the new name is yet to be determined.
Based on Wednesday's closing share price, the transaction values the
common stock of Washington Energy Company at approximately $488 million.
Under the transaction, shares of preferred stock of Washington Natural
Gas Company, a subsidiary of Washington Energy Company, will be converted into
compatible shares of the merged company.
After the merger, the new company will adopt Puget Power's dividend
policy (currently $1.84 per share per year). During the merger approval
process, each company will continue their respective dividend policies (which
for Washington Energy Company is $1.00 per share per year). The merger would
be structured as a tax-free exchange of shares, and would be accounted for as a
pooling of interests.
OVERLAPPING TERRITORY/JOINT OPERATIONS
The utilities' overlapping service territory covers approximately
6,000 square miles with a population of more than 3 million. The two companies
have 250,000 customers in common in that area.
Puget Power and Washington Natural Gas have been working on joint
activities over the past several years that demonstrate the significant
benefits to be gained form combined operations. These projects have included
joint meter reading and joint customer installations. In addition, other
activities such as joint billing,
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combined data centers and sharing of proprietary software systems, have been
evaluated and found to hold potential for further efficiencies.
FINANCIAL SYNERGIES
Savings from the merger would be substantial: approximately $370
million over the next ten years, according to studies by Deloitte & Touche.
These savings would be accomplished through elimination of duplicate and
administrative programs and through integration of field operations and
facilities. About 45 percent of the savings would come from an 8 percent
reduction in combined work force (which currently totals about 3,550
employees).
The financial and operating synergies resulting from the merger should
keep the new company's gas and electric utility rates lower than they would
have been if this merger were not to occur.
The combination should positively impact earnings as synergies are
realized.
OPERATING SYNERGIES
Sonstelie and Vititoe cited numerous examples of anticipated operating
efficiencies and improvements;
- - Managing customers' total energy service requirements in the most
efficient manner without bias energy type--including the possibility
of enabling customers to shift easily between gas and electricity to
achieve short-term savings.
- - Providing energy as a separate commodity or bundled with the
transportation or distribution service, whichever best fits a
customer's needs--applying to electricity the concepts developed
following deregulation of the gas industry.
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- - Providing convenience to customers, who in most cases will be able to
conduct all their energy business with one company contact, at
combined gas-electric service centers.
- - Responding more quickly to distribution interruptions with a combined,
cross-trained work-force.
- - Performing field work more efficiently, as increased customer density
allows field personnel to reach more sites each day.
- - Minimizing environmental disruption by joint engineering, sitting and
construction of facilities.
CORPORATE MAKEUP
The new company would operate as a combined gas and electric utility.
The two companies' existing non-regulated entities would continue as
subsidiaries of the new company.
Sonstelie would serve as Chairman and CEO of the new company, with
Vititoe serving as President and Chief Operating Officer. William S. Weaver,
currently Executive Vice President and Chief Financial Officer of Puget Power,
would serve as Vice Chairman of the new company and Chairman of the Unregulated
Subsidiaries. James P. Torgerson, currently Executive Vice President, Chief
Administrative Officer and Chief Financial Officer of Washington Energy, would
serve as Chief Financial Officer and the new company.
The Board of Directors of the new company would consist of up to 15
individuals, drawn in a two-to-one ratio from the current Puget Power and
Washington Energy Company boards.
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The new company's headquarters would be in Bellevue, Washington--an
area currently served by the utility operations of both companies--at the
current Puget Power corporate headquarters.
APPROVAL PROCESS
The Merger Agreement is subject to approval by shareowners in both
companies and by the Washington Utilities and Transportation Commission (WUTC),
which regulates the utility operations of both.
Shareholder approval will be sought at special meetings to be
scheduled for early in calendar 1996.
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DATA REPORTED AS OF JUNE 30, 1995
WECO PUGET
12 MOS. 12 MONTHS
ENDED 6/30/95 ENDED 6/30/95 COMBINED
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Financial Statement Information
Total Assets $1,037,961 $3,221,820 $4,259,781
Total Revenues $ 447,419 $1,201,161 $1,648,580
Common Stock Information
Earnings per Share $ 0.27 $ 1.75
Current Annual Dividend/Share $ 1.00 $ 1.84
Current Stock Price
(closing price, 10/18/95) $ 17.00 $ 23.625
Current Dividend Yield (as of 10/18/95) 5.9% 7.8%
Average Common Shares Outstanding 23,795 63,637
Capital Structure Information
Credit Ratings
Secured Debt Baa2/BBB A3/A-
Commercial Paper A3/P3 baa11/BBB+
Preferred Stock baa3/BBB- baa1/BBB+
Capital Structure
Short-term Debt $ 125,480 $ 15,785 $ 141,265
Long-term Debt 330,200 1,071,369 1,401,569
Preferred Stock 90,000 214,039 304,039
Common Equity 261,696 1,178,069 1,439,765
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Total Capitalization & Short-term Debt $ 807,376 $2,479,262 $3,286,638
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Operating Statistics
Service Territory - Area 2,619 Sq. Mi. 4,500 Sq. Mi.
Service Territory - Population 3.0 Million 1.8 Million Over 3 million
Current Customers
Firm 467,180
Interruptible 1,039
Transportation 47
Current Customers
Residential 737,610
Commercial 87,337
Industrial 3,891
Other 1,346
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Total 468,266 830,184
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Total Gas & Electric Accounts 1,298,450
Customers of Both 250,000
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Total Customers 1,048,450
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Employees 1,354 2,199 3,553
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Subject to the approval process, the merger could be concluded in the
last half of 1996.
FINANCIAL ADVISORS
Goldman, Sachs & Co. is serving as financial advisor to Washington
Energy Company, and Morgan Stanley & Co. for Puget Power.
BACKGROUND
Puget Sound Power & Light is the largest investor-owned electric
utility serving Washington state. Puget Power distributes electric power to
830,000 customers in nine counties.
Washington Energy Company is a holding company whose principal
subsidiary is Washington Natural Gas Company, the largest gas distribution
utility in the Pacific Northwest. Washington Natural Gas serves 468,000
customers in five counties in western Washington state, including the Greater
Seattle area. Washington Energy, through other subsidiaries, also sells
natural gas heating equipment, monitored security systems and energy-efficiency
products for the home, and has interests in coal properties and related rail
transportation of coal for future development in Montana.
WASHINGTON ENERGY ACCOUNTING ADJUSTMENTS
In addition, Washington Energy Company decided to: (1) adopt
Financial Accounting Standards Board opinion number 121; (2) to establish
reserves for ongoing restructuring efforts; and (3) to reflect a reduction in
value of certain other investments in the fiscal year ended September 30, 1995.
These charges are expected to be in the range of $40 to $50 million on an
after-tax basis.
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