Filed by Conectiv
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 of the
Securities Exchange Act of 1934
Commission File No.: 1-13895
Subject Company: Conectiv
Commission File No.: 1-13895
THE FOLLOWING IS A PRESS RELEASE DISSEMINATED BY POTOMAC ELECTRIC POWER
COMPANY AND CONECTIV ON FEBRUARY 12, 2001
[LOGO] PEPCO [LOGO] CONECTIV
PEPCO AND CONECTIV TO COMBINE TO CREATE THE LARGEST
MID-ATLANTIC ELECTRICITY DELIVERY COMPANY
Transaction Valued at $2.2 Billion
Washington, D.C. and Wilmington, Delaware, February 12, 2001 - Potomac Electric
Power Company ("Pepco") (NYSE: POM)and Conectiv (NYSE: CIV/CIVA)today
announced that their boards of directors have approved a definitive merger
agreement under which Pepco will acquire Conectiv for a combination of cash and
stock valued at approximately $2.2 billion or $25.00 per CIV share. Both
companies will become subsidiaries of a new holding company to be named at a
later date.
The combination is expected to be immediately accretive to Pepco's earnings per
share and will be accounted for as a purchase. The companies anticipate that
the transaction will be completed in approximately 12 months.
The combination creates the largest electricity delivery company in the dynamic
mid-Atlantic PJM region, serving more than 1.8 million customers in Delaware,
the District of Columbia, Maryland, New Jersey and Virginia. The core delivery
business will be complemented by a valuable, well-positioned portfolio of
mid-merit generating assets and related marketing and risk management
capabilities. These assets, combined with power purchase and regulatory
agreements, will provide for the combined company's supply requirements through
2004. In addition, the combined company's growing, non-regulated energy and
telecommunications businesses, which are focused on a broad customer base, will
further enhance the core business.
John M. Derrick, Jr., chairman and chief executive officer of Pepco, said:
"This transaction elevates us to the leading position among mid-Atlantic
electricity delivery companies. In addition to more than doubling our customer
base and expanding our service territory by nine times, this combination will
allow us to achieve operating efficiencies that will benefit our shareholders,
customers and employees alike. Among other things, our ability to spread new
technology costs across a greater asset base will bring a higher level of
service, reliability and responsiveness to our customers. Our strategic
combination will improve our ability to grow earnings in the changing energy
marketplace.
"Pepco has had the opportunity to develop a strong working relationship with
Conectiv over the years as neighbors, partners and members of PJM. We have
complementary business strategies and similar corporate values, and I am
confident that the combined company will be able to deliver greater value to
all of our constituencies by drawing on the best practices and talent that
exist within both of our organizations. We will continue both companies'
strong traditions of support for the communities where we live and work through
charitable contributions and the encouragement of employee volunteerism," he
concluded.
Howard E. Cosgrove, chairman and chief executive officer of Conectiv, said:
"This combination with Pepco provides important benefits to all of our
stakeholders that are not achievable on a stand-alone basis. The customers we
serve will continue to enjoy excellent, reliable service at competitive rates
from the same dedicated people who serve them today. Conectiv shareholders will
receive a premium for their shares and have the opportunity to participate in
the enhanced earnings and growth potential of the combined company. And our
employees will benefit by becoming part of a dynamic company that is poised to
play a leading role in the rapidly evolving energy industry."
Both Pepco and Conectiv have independently made significant investments to
enhance their system reliability, thus helping to ensure that their customers
will have the power they need when they need it. Both companies share a
commitment to high quality customer service.
Management and Headquarters
Mr. Derrick will be chairman and chief executive officer of the new holding
company. Mr. Cosgrove plans to retire at the completion of the merger. The
board of directors of the holding company will have 12 directors, at least
two of whom will come from the current Conectiv board. The holding company
will have its headquarters in Washington, D.C. Conectiv will maintain its
headquarters in Wilmington, Delaware and will continue to have significant
operations in New Jersey and the Delmarva Peninsula. This combination is
not expected to result in significant workforce reductions and all union
contracts will be honored.
Terms
Pepco stockholders will receive one share of the holding company's common stock
on a tax-free basis for each share of Pepco common stock they hold. Conectiv
common stockholders will have the option to receive either $25.00 in cash or
holding company shares, subject to proration, such that the aggregate
consideration paid to all Conectiv stockholders will be 50 percent cash and 50
percent stock. The amount of stock to be issued in the merger is subject to a
fixed-price collar for Pepco stock prices between $19.50 and $24.50, such that
each Conectiv share would be converted into not less than 1.02041 and not more
than 1.28205 shares of the new company. The transaction is expected to be
tax-free to the extent that Conectiv stockholders receive stock for their
shares. As provided by Conectiv's certificate of incorporation, each holder of
Class A stock will receive 86.8 percent of the per share value received by the
common stockholders, or $21.69, subject to the same proration and collar
provisions as the common stockholders.
Based on the number of common shares currently outstanding on a fully diluted
basis, Pepco stockholders will own approximately 67 percent of the common
equity of the combined company, and Conectiv stockholders will own
approximately 33 percent.
A significant portion of the acquisition will be financed through cash on hand
including proceeds from Pepco's recently completed sale of generating assets,
as well as external financing.
The merger is conditioned upon, among other things, the approvals of Pepco and
Conectiv stockholders and various state and federal regulatory agencies. The
new holding company will register with the SEC under the Public Utility Holding
Company Act of 1935.
Dividend Policy and Share Repurchase
Pepco announced today that it will reduce its annual dividend to $1.00 per share
from $1.66 per share, effective with the June 2001 dividend. This action is
being taken to make Pepco's dividend payout ratio comparable to other delivery
companies and to provide for continued investment in the growth of the company.
The March 2001 dividend will remain at its current level. Pepco has also
authorized a share repurchase program of up to $450 million. The new holding
company expects to adopt Pepco's new dividend policy; as such, Conectiv
stockholders who elect to receive stock can expect a higher dividend than they
are currently receiving.
Merrill Lynch & Co., Inc. is acting as financial advisor, and LeBoeuf, Lamb,
Greene & MacRae, L.L.P. is acting as legal counsel to Pepco. Credit Suisse
First Boston Corporation is acting as financial advisor, and Simpson Thacher &
Bartlett and Potter Anderson & Corroon LLP are acting as legal counsel to
Conectiv.
About Pepco
Pepco is an investor-owned utility that delivers electricity in Washington, D.C.
and its Maryland suburbs to more than 700,000 customers. Through its family of
subsidiaries, Pepco also operates in the mid-Atlantic region in the competitive
arenas of diversified energy products and services, telecommunications and
Internet procurement marketing. In a nationwide customer satisfaction study
conducted in 2000 by J.D. Power and Associates and Navigant Consulting, Inc.,
Pepco ranked highest in Customer Satisfaction with Residential Electric Service
in the Eastern region of the United States.* For more information, visit the
company's website at www.pepco.com.
About Conectiv
Conectiv, a Fortune 500 company headquartered in Wilmington, DE, is focused on
two core energy businesses. Conectiv Power Delivery provides safe, reliable,
and affordable energy service to more than one million customers in New Jersey,
Delaware, Maryland, and Virginia. Conectiv Energy uses a sophisticated
power-trading unit to optimize the value of a growing portfolio of "mid-merit"
power plants that can start and stop quickly in response to changes in the
demand for power within the PJM [Pennsylvania-New Jersey-Maryland] power pool.
For more information, visit the company's website at www.conectiv.com.
*J.D. Power and Associates/Navigant Consulting, Inc., 2000 Electric Utility
Residential Customer Satisfaction StudySM. The study was based on a total of
23,969 consumer responses. In the Eastern Region, the top 19 largest electric
companies were ranked in the study. www.jdpower.com
Forward Looking Statements:
Except for historical statements and discussions, the statements in this press
release constitute "forward-looking statements" within the meaning of the
federal securities laws. These statements contain managements' beliefs based on
information currently available to them and on various assumptions
concerning future events. Forward-looking statements are not a guarantee of
future performance or events. They are subject to a number of uncertainties and
other factors, many of which are outside the companies control. In connection
with the transaction, additional important factors that could cause actual
results to differ materially from those in the forward-looking statements
herein include risks and uncertainties relating to delays in obtaining or
adverse conditions contained in, related regulatory approvals, changes in
economic conditions, availability and cost of capital, changes in weather
patterns, changes in laws, regulations or regulatory policies, developments
in legal or public policy doctrines and other presently unknown or unforeseen
factors. These uncertainties and factors could cause actual results to differ
materially from such statements. The companies disclaim any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. This information is
presented solely to provide additional information to further understand the
results and prospects of the companies.
Additional Information
In connection with the proposed merger, Pepco and Conectiv will file a joint
proxy statement/prospectus with the Securities and Exchange Commission (the
"SEC"). WE URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY
OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION. Investors will be able to obtain a
copy of the joint proxy statement/prospectus (when available) and other
documents filed by Pepco and Conectiv free of charge at the SEC's web site,
http://www.sec.gov or at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, reports, proxy statements and other
information concerning Pepco can be inspected at the offices of the New York
Stock Exchange, Inc., whose address is 20 Broad Street, New York, NY 10005,
where certain securities of Pepco are listed. You can also obtain information
about Pepco at the company's website, the address of which is
http://www.pepco.com. You can obtain information about Conectiv at the
company's website, the address of which is www.conectiv.com. In addition,
documents filed by Pepco with the SEC can be obtained by contacting Pepco at
the following address and telephone number: Ellen Sheriff Rogers, Associate
General Counsel, Secretary and Assistant Treasurer, Potomac Electric Power
Company, 1900 Pennsylvania Avenue, N.W., Washington D.C. 20068, telephone
(202) 872-2900. Documents filed with the SEC by Conectiv can be obtained by
contacting Conectiv at the following address and telephone number: Corporate
Secretary, Conectiv, 800 King Street, Wilmington, DE 19899, telephone
(302) 429-3114.
Pepco, its officers, directors and certain other employees of Pepco may be
soliciting proxies from Pepco stockholders in favor of the merger and may be
deemed to be "participants in the solicitation" under the rules of the SEC.
Conectiv, its officers, directors and certain other employees of Conectiv may be
soliciting proxies from Conectiv stockholders in favor of the merger and may be
deemed to be "participants in the solicitation" under the rules of the SEC.
Information regarding the interests of the participants in the solicitation will
be set forth in the joint proxy statement/prospectus when it becomes available.
Financial Analyst Conference:
There will be a financial analyst conference today at 10:00 AM (EST) to discuss
the transaction. It can be monitored via the world wide web at www.pepco.com
and www.conectiv.com or
http://webcast.themeetingson.com/webcast.jsp?reservation=17967394.
Media Teleconference:
There will be a media teleconference call today at 11:30 AM (EST) to discuss
the transaction. It can be accessed by dialing (800) 213-1351, or (212)
676-5001 for international callers, and asking for the Pepco/Conectiv media
teleconference.
Contacts for Pepco Contacts for Conectiv
Investors: Investors:
Ernie Bourscheid Bob Marshall
(202) 872-2797 (302) 429-3114
ejbourscheid@pepco.com robert.marshall@conectiv.com
Media: Media:
Nancy Moses Tim Brown
(202) 872-2680 (302) 283-5803
nsmoses@pepco.com tim.brown@conectiv.com
# # #
THE FOLLOWING IS AN OVERVIEW OF THE TRANSACTION MADE AVAILABLE TO ANALYSTS
[LOGO] PEPCO [LOGO] CONECTIV
Transaction Overview
- --------------------------------------------------------------------------------
Terms: o Cash and stock transaction valued at $2.2 billion ($25 per
share)
o Expected to be immediately accretive to Pepco's earnings
per share
o Both companies will become subsidiaries of a new holding
company to be named at a later date
o Pepco stockholders will receive one share of new holding
company common stock for each share of Pepco common stock
they hold (tax free)
o Conectiv common stockholders will have the option to
receive either $25.00 in cash or holding company shares
o Conversion of Conectiv shares will be subject to proration,
such that the aggregate consideration paid to all Conectiv
stockholders will be 50% cash and 50% stock
o Amount of stock to be issued in the merger is subject to a
fixed-price collar for Pepco stock prices between $19.50 and
$24.50, such that each Conectiv share would be converted
into not less than 1.02041 and not more than 1.28205 shares
of the new holding company
o Transaction is expected to be tax-free to the extent that
Conectiv stockholders receive stock for their shares
o Conectiv Class A stock will receive 86.8% of the per share
value received by the common stockholders, or $21.69,
subject to the same proration and collar provisions as the
common stockholders
o Transaction to be accounted for as a purchase
- --------------------------------------------------------------------------------
Dividend: o Pepco will reduce its annual dividend to $1.00 per share
from $1.66 per share, effective with the June 2001 dividend,
to make Pepco's dividend payout ratio comparable to other
delivery companies and to provide for continued investment
in the growth of the company
o New holding company expects to adopt Pepco's new dividend
policy
- --------------------------------------------------------------------------------
Management o John M. Derrick, Jr. will become chairman and CEO of new
& Board: holding company
o Howard E. Cosgrove will retire at completion of merger
o Board of the new holding company will have 12 directors, at
least two of whom will come from the current Conectiv board
- --------------------------------------------------------------------------------
Approval o Approval by stockholders of both companies
Process: o Approvals from various state and federal regulatory
agencies
o New holding company to register with the SEC under the
Public Utility Holding Company Act of 1935
o Transaction expected to be completed in approximately 12
months
- --------------------------------------------------------------------------------
Headquarters: o New holding company will have its headquarters in
Washington, D.C.
o Conectiv will maintain its headquarters in Wilmington,
Delaware and will continue to have significant operations
in New Jersey and the Delmarva Peninsula
- --------------------------------------------------------------------------------
Conectiv Fact Sheet LOGO [CONECTIV]
Business Summary
Conectiv, a Fortune 500 company headquartered in Wilmington, DE, is focused on
two core energy businesses. Conectiv Power Delivery provides safe, reliable,
and affordable energy service to more than one million customers in New Jersey,
Delaware, Maryland, and Virginia. Conectiv Energy uses a sophisticated
power-trading unit to optimize the value of a growing portfolio of "mid-merit"
power plants that can start and stop quickly in response to changes in the
demand for power within the PJM [Pennsylvania-New Jersey-Maryland] power pool.
For more information, visit the company's website at www.conectiv.com.
Conectiv's energy and energy-related services include:
o Power Delivery:
Provides regulated electric service to more than 1 million homes and
businesses in Delaware, Maryland, New Jersey, and Virginia. It provides
regulated natural gas service to approximately 100,000 customers in
Northern Delaware.
o Retail and Merchant Energy:
Uses risk management and sophisticated power trading capabilities to
optimize value of unregulated power plants in the wholesale market. Also,
helps large commercial and industrial customers optimize their energy
usage through managing their fuel mix and usage, and selling fuels at
advantageous prices.
o Conectiv Solutions:
Offers large commercial and industrial companies customized energy
solutions, including electrical and mechanical systems consulting, energy
management and controls, and telecommunications.
Conectiv's non-energy related services include:
o Conectiv Communications:
Markets local and long-distance telephone services, data services, and
other telecommunication services. It operates a fiber optics network of
more than 730 route miles, and has installed its equipment in 62 Verizon
central offices. It has about 110,000 access lines.
Conectiv at a Glance
o Publicly held company (NYSE: CIV/CIVA) with consolidated operating
revenues for the twelve months ended December 31, 2000 of $5.03 billion.
o Headquartered in Wilmington, Delaware.
o Over 3,800 employees.
o Serves more than 1.1 million customers
Financial Highlights
Consolidated operating revenues for the twelve months ended December 31, 2000
increased 34% to $5.03 billion, primarily as a result of Conectiv's wholesale
energy marketing and trading business and the effects of economic growth in
Conectiv's Mid Atlantic service territory.
The sources of Conectiv's 1999 consolidated revenues were as follows:
o Regulated (subject to price regulation) electricity sales - 57.4%
- Residential customer class - 46.2%
- Commercial customer class - 38.5%
- Industrial customer class - 14.4%
- Other - 0.9%.
o Non-regulated (not subject to price regulation) electricity sales - 8.3%
o Regulated gas sales-3.1%; non-regulated gas sales - 18.7%
o Other services (telecom, HVAC, petroleum sales, and other activities) -
12.5%.
Conectiv Executive Team
o Howard Cosgrove, Chairman and Chief Executive Officer
o Thomas Shaw, President and Chief Operating Officer
o John Van Roden, Senior Vice President and Chief Financial Officer
o Barbara Graham, Senior Vice President and Chief Information Officer
o William Spence, Senior Vice President
o Joseph Rigby, Senior Vice President
- -------------------- -------------------------- --------------------------------
Corporate Offices Investor Relations Media Relations
800 King Street Bob Marshall Tim Brown
P.O. Box 231 Phone: (302) 429-3114 Phone: (302) 283-5803
Wilmington, DE 19899 Email: Robert.Marshall@ Email: Tim.Brown@conectiv.com
www.conectiv.com conectiv.com
- -------------------- -------------------------- --------------------------------
[LOGO] PEPCO
PEPCO Fact Sheet
Business Summary
Potomac Electric Power Company (Pepco) engages in regulated utility operations
and, through its wholly owned subsidiaries, provides competitive energy and
telecommunications products and services. The utility delivers electricity at
regulated rates to 1.9 million people in Washington, D.C., and major portions
of Prince George's and Montgomery counties in suburban Maryland. During the
transition to customer choice, the utility also is selling electricity at
regulated rates within its service area.
Pepco's business strategy is to diversify beyond its regulated utility
operations and become a regional, full-service provider of energy and
telecommunications products and services in the mid-Atlantic market.
Pepco's energy and energy-related services include:
o Regulated utility electricity delivery services.
o Pepco Energy Services (PES) sells energy services and competitive
electricity and natural gas to retail and wholesale markets in the
mid-Atlantic region.
Pepco's non-energy related services include:
o Potomac Capital Investment Corporation (PCI)through Starpower
Communications, Inc., a 50/50 joint venture with RCN Corporation, offers
telecommunications products and services in the Washington, D.C.,
metropolitan area.
o PepMarket, a newly formed subsidiary, offers internet-based procurement
services to business and institutional clients.
Pepco at a Glance
o Publicly held company (NYSE: POM) with operating revenues of more than
$2.6 billion in 2000.
o Headquartered in Washington, D.C.
o Approximately 2,500 employees.
o Serves more than 1.9 million customers in Washington, D.C., and major
portions of Prince George's and Montgomery counties in suburban Maryland.
Financial Highlights
Total operating revenues were $2.6 billion for the twelve months ended December
31, 2000, up from $2.5 billion in 1999.
The sources of Pepco's 2000 revenues were as follows (in millions):
o Energy Services- $236.4
o Utility - $2,237.5
o PCI Services - $149.9
Pepco Executive Team
o John M. Derrick, Jr., Chairman of the Board and Chief Executive Officer
o Dennis R. Wraase, President and Chief Operating Officer
o William T. Torgerson, Executive Vice President, External Affairs and
General Counsel
o Andrew W. Williams, Senior Vice President and Chief Financial Officer
o William J. Sim, Senior Vice President, Power Delivery
o Robert C. Grantley, Group Vice President, Customer Care
- ---------------------------- ------------------------ -------------------------
Corporate Offices Investor Relations Media Relations
1900 Pennsylvania Ave. N.W. Ernest J. Bourscheid Nancy Moses
Washington, D.C. Phone: (202) 872-2797 Phone: (202) 872-2680
20068-0001 Fax: (202) 331-6874 Fax: (202) 331-4857
www.pepco.com Email: Email: nsmoses@pepco.com
ejbourscheid@pepco.com
- ---------------------------- ------------------------ -------------------------
THE FOLLOWING IS A PRESENTATION MADE ON FEBRUARY 12, 2001
[LOGO] PEPCO [LOGO] CONECTIV
Creating the Largest Mid-Atlantic Electricity Delivery Company
February 12, 2001
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
This presentation contains forward looking statements within the meaning of the
"safe harbor" provisions of the United States Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
with respect to revenues, earnings, performance, strategies, prospects and other
aspects of the businesses of Potomac Electric Power Co. and Conectiv are based
on current expectations that are subject to risk and uncertainties. A number of
factors could cause actual results or outcomes to differ materially from those
indicated by such forward looking statements. These factors include, but are not
limited to, risks and uncertainties relating to: changes in laws or regulations,
changing governmental policies and regulatory actions with respect to allowed
rates of return including but not limited to return on equity and equity ratio
limits, industry and rate structure, operation of nuclear power facilities,
acquisition, disposal, depreciation and amortization of assets and facilities,
operation and construction of plant facilities, recovery of fuel and purchased
power costs, decommissioning costs, present or prospective wholesale and retail
competition (included but not limited to retail wheeling and transmission
costs), political and economic risks, changes in and compliance with
environmental and safety laws and policies, weather conditions (including
natural disasters such as hurricanes), population growth rates and demographic
patterns, competition for retail and wholesale customers, availability, pricing
and transportation of fuel and other energy commodities, market demand for
energy from plants or facilities, changes in tax rates or policies or in rates
of inflation or in accounting standards, unanticipated delays or changes in
costs for capital projects, unanticipated changes in operating expenses and
capital expenditures, capital market conditions, competition for new energy
development opportunities and legal and administrative proceedings (whether
civil, such as environmental, or criminal) and settlements and other factors.
Readers are referred to Potomac Electric Power Co.'s and Conectiv's most recent
reports filed with the Securities and Exchange Commission.
Today's Presenters
John Derrick Jr. Howard Cosgrove
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
Potomac Electric Power Company Conectiv
Howard Cosgrove
Chairman and Chief Executive Officer
Conectiv
The Transaction
o PEPCO and Conectiv will merge into a new holding company "HoldCo", to be
named at a later date
Offer Price: o $25.00 per common share; $21.69 per CIV.A share
o Conectiv shareholders may elect to receive cash or
stock, subject to 50% cash / 50% stock proration
o Fixed price (subject to collar) to protect value
Transaction Value: $2.2 billion Equity
+ $3.2 billion Net Debt and Preferred
---------------
$5.4 billion Transaction Value
Premium: o 30.6% premium to unaffected common share price of $19.14
Key Transaction Terms
o PEPCO shareholders receive 1 share [GRAPHIC]
of HoldCo stock in exchange for
each POM share
o 50% of all CIV shares are
exchanged for cash
o 50% of all CIV shares are
exchanged for $25 in value of
HoldCo common stock, so long
as PEPCO stock price is
between $19.50 and $24.50
o 1.28205 to 1.02041 exchange
collar for CIV
o HoldCo is formed
o 1.11227 to 0.88528 exchange
collar for CIV.A o Conectiv shareholders exchange
stock for cash and shares in HoldCo
o HoldCo share exchange with PEPCO
and CIV (50% proration) receives o PEPCO shareholders exchange stock
tax-free treatment for shares in HoldCo
o Transaction closing expected in o PEPCO and Conectiv become wholly
approximately 12 months owned subsidiaries of HoldCo
John Derrick Jr.
Chairman and Chief Executive Officer
Potomac Electric Power Company
Creating A Superior Regional Delivery Company
o Combination positions HoldCo as the leading Mid-Atlantic electric delivery
company
o The largest electricity delivery company in PJM/(1)/
o 1.8 million delivery customers
o Service territory of 10,000 sq. miles
o Secure energy supply through transition period
o Regulatory settlements in all jurisdictions
o Poised for earnings growth (6-8%)
o Immediately accretive to earnings
o Share buyback coupled with dividend reduction
o Solid investment grade balance sheet
o Enhanced platform for unregulated growth
- --------------------
(1) Based upon total electricity delivered to end customers
New HoldCo
Management: o John Derrick Jr. -- Chairman and CEO
Board of Directors: o 12 Board Members
o at least 2 from Conectiv
HoldCo Headquarters: o Washington, D.C.
Conectiv Headquarters: o Wilmington, Delaware
Dividend: o $1.00 per share
PEPCO Authorized Share Buyback: o Up to $450 million
Stronger Competitor in the Mid-Atlantic
o Combination creates the largest [MAP OF COMBINED SERVICE TERRITORY]
electric delivery company in PJM
o More than 46,000 GWh delivered
annually
o 1.8 million electric and gas
customers in 5 states
o 10,000 square mile service
territory with a population of
4.0 million
o Flexible mid-merit generation to
support delivery business
o Over 2,500 MW owned plus 550
MW under construction
o Located near major load centers
Leading Delivery Company
[PIE CHART SHOWING COMBINED PIM RETAIL SALES RANKING
CUSTOMER MIX]
1999 GWh
--------
1. HoldCo 46,775
2. Allegheny 42,198
3. PSE&G 40,289
4. GPU 33,974
5. Baltimore Gas & Electric 29,264
6. Potomac Electric 24,209
7. PECO 23,594
8. PPL 23,397
9. Conectiv 22,565
Reliable Energy Supply
o Energy supply obligations are well covered through the transition periods
o Power Purchase Contracts
o 4 year power purchase agreements with Mirant and (upon closing) NRG
o Generating Assets
o 800 MW in DC
o More than 2,000 MW currently operating elsewhere in PJM
o Regulatory Agreements
o Basic generation service cost pass-through in New Jersey
o Location
o PJM is the largest, most liquid market in North America
Award-Winning Customer Service
[BAR CHART SHOWING RESULTS J.D. Power and Associates
OF SURVEY]
o J.D. Power and Navigant Consulting
conducted a nationwide survey
o PEPCO ranked "Highest in Customer
Satisfaction With Residential Electric
Service in the Eastern region
of the United States"
o Rating of 108 vs. industry average
of 101
o Driven by strength in customer
service and company image
Platform for Non-Regulated Growth
o Energy marketing operations at both companies
o Broad and growing customer base
o Low cost, flexible mid-merit generation
o Proven risk management capabilities
o Established telecommunications businesses
o Innovative Starpower network with telecom/internet distribution
o Extensive, strong customer relationships
o Regional business-to-business platform
o Enertech Capital investments in high growth energy technology sector
Creating Shareholder Value
o Enhanced earnings growth
o Immediately accretive including goodwill amortization and before savings
o Targeted 6-8% earnings growth, which is higher than Street forecasts
for either company
- Growth in core delivery business
- Larger platform for customer focused non regulated businesses
- Efficiencies and savings
o Significant share buyback program
o Up to $450 million
o Approximately 20% of current PEPCO equity capitalization
o Attractive dividend ($1.00/HoldCo Share)
o Aligned with peers
o Higher than current CIV dividend
Commitment To Credit Quality
o Substantial portion of the purchase price will be funded with cash proceeds
from recent generation divestitures
o Remaining funding requirements likely provided via external financing
o Expect to maintain solid investment grade credit rating at HoldCo as well as
Potomac Electric, Atlantic City Electric and Delmarva Power & Light
o Pro Forma capitalization of approximately 60% total debt/total
capitalization upon closing
o Reduce leverage over time to further strengthen ratings
Transaction Timeline
o Expect all required approvals can be obtained within 12 months
Event Estimated Date
Shareholders meeting May/June 2001
Receive State and Federal 4th Quarter, 2001 - 1st Quarter, 2002
regulatory approvals
Close transaction 1st Quarter, 2002
o Required regulatory approvals include
o SEC
o FERC
o State commissions
Additional Informtion
In connection with the proposed merger, Pepco and Conectiv
will file a joint proxy statement/prospectus with the Securities
and Exchange Commission (the "SEC"). WE URGE INVESTORS TO READ THE JOINT
PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE
SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. Investors will be able to obtain a copy of the joint proxy
statement/prospectus (when available) and other documents filed by Pepco
and Conectiv free of charge at the SEC's web site, http://www.sec.gov or
at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, reports, proxy statements and other information
concerning Pepco can be inspected at the offices of the New York
Stock Exchange, Inc., whose address is 20 Broad Street, New York, NY 10005,
where certain securities of Pepco are listed. You can also obtain information
about Pepco at the company's website, the address of which is
http://www.pepco.com. You can obtain information about Conectiv at the
company's website, the address of which is www.conectiv.com. In addition,
documents filed by Pepco with the SEC can be obtained by contacting
Pepco at the following address and telephone number: Ellen Sheriff Rogers,
Associate General Counsel, Secretary and Assistant Treasurer, Potomac Electric
Power Company, 1900 Pennsylvania Avenue, N.W. Washington D.C. 20068, telephone
(202) 872-2900. Documents filed with the SEC by Connectiv can be obtained
by contacting Connectiv at the following address and telephone number:
Corporate Secretary, Connectiv, 800 King Street, Wilmington, DE 19899,
telephone (302) 429-3114.
THE FOLLOWING IS MATERIAL DISSEMINATED TO EMPLOYEES
Dear Fellow Employee:
I am pleased to tell you that Pepco today announced the acquisition of
Conectiv for approximately $2.2 billion in cash and stock. We are very excited
about this combination, which will more than double our customer base and expand
our service territory by nine times, making us the largest electricity delivery
company in the mid-Atlantic region.
Under the terms of the agreement, both of our companies will become
subsidiaries of a new holding company, which will be headquartered in
Washington, D.C. Conectiv will maintain its headquarters in Wilmington, Delaware
and will continue to have significant operations in New Jersey and the Delmarva
Peninsula. Together, we will bring high quality, low cost energy delivery
service to more than 1.8 million electricity and gas customers in the dynamic
region comprising Delaware, the District of Columbia, Maryland, New Jersey and
Virginia.
We believe this transaction represents a significant step forward in our
effort to become a premier regional electricity delivery company. Our
combination with Conectiv will improve our ability to grow earnings in the
changing energy marketplace and lower our technology costs, allowing us to
provide a higher level of service, reliability and responsiveness to the
communities we serve. The core delivery business will be complemented by a
valuable portfolio of mid-merit generating assets and related marketing and risk
management capabilities and further enhanced by the combined company's growing,
non-regulated energy and telecommunications businesses.
We have developed a close relationship with Conectiv over the years as
neighbors, partners and members of PJM, and I am confident that we can
successfully build on this strong foundation in the years ahead. Not only do we
have complementary strategies and similar cultures, but we can create even
greater benefits and opportunities for all of our constituencies by drawing on
the best practices and talent that exist within both of our organizations.
Our new, larger company will provide exciting internal opportunities for
growth and development. As in any such transaction, there will inevitability be
some staff redundancies. However, the companies expect to accomplish any
necessary workforce reductions primarily through restricted hiring, attrition
and voluntary separation programs. We anticipate that involuntary separations,
if any, will be minimal. Of course, all union contracts will be honored.
We expect the merger can be completed in about 12 months. In the meantime,
it is essential that we maintain our focus on our key objective - providing our
customers with the same outstanding service they have come to expect from us. I
know I can count on you to continue Pepco's high level of professionalism and
skill as we enter this new phase, and I thank you for your ongoing patience and
support.
Sincerely,
John M. Derrick, Jr.
Dear Fellow Employee:
I am pleased to tell you that we announced today, together with Pepco,
that Pepco will acquire our company for approximately $2.2 billion in cash
and stock. We are very excited about this transaction, which will make our
combined company the largest electricity delivery company in the mid-Atlantic
region.
Under the terms of the agreement, both of our companies will become
subsidiaries of a new holding company, which will be headquartered in
Washington, D.C. Conectiv will maintain its headquarters in Wilmington, Delaware
and will continue to have significant operations in New Jersey and the Delmarva
Peninsula. Together, we will bring high quality, low cost energy delivery
service to more than 1.8 million electricity and gas customers in the dynamic
region comprising Delaware, the District of Columbia, Maryland, New Jersey and
Virginia.
We believe this transaction represents a significant step forward in our
effort to become a premier regional electricity delivery company. Our
combination with Pepco will improve our ability to grow earnings in the
changing energy marketplace and lower our technology costs, allowing us to
provide a higher level of service, reliability and responsiveness to the
communities we serve. The core delivery business will be complemented by a
valuable portfolio of mid-merit generating assets and related marketing and
risk management capabilities and further enhanced by the combined company's
growing, non-regulated energy and telecommunications businesses.
We have developed a close relationship with Pepco over the years as
neighbors, partners and members of PJM, and I am confident that we will
successfully build on this strong foundation in the years ahead. Not only do
we have complementary strategies and similar cultures, but we can create even
greater benefits and opportunities for all of our constituencies by drawing on
the best practices and talent that exist within both of our organizations.
Our new, larger company will provide exciting internal opportunities for
growth and development. As in any such transaction, there will inevitability be
some staff redundancies. However, the companies expect to accomplish any
necessary workforce reductions primarily through restricted hiring, attrition
and voluntary separation programs. We anticipate that involuntary separations,
if any, will be minimal. Of course, all union contracts will be honored.
We expect that the merger can be completed in about 12 months. In the
meantime, it is essential that we maintain our focus on our key objective -
providing our customers with the same outstanding service they have come to
expect from us. We should all feel very proud of the tangible value our hard
work and dedication has created for this company, and I know I can count on you
to continue Conectiv's high level of professionalism and skill as we enter this
new phase. Thank you for your ongoing patience and support.
Sincerely,
Howard E. Cosgrove
QUESTIONS FOR EMPLOYEES
1. Why was the merger proposed?
This transaction is a natural fit that elevates the combined company to the
leading position among mid-Atlantic electricity delivery companies. The
core delivery business will be complemented by a valuable, well-positioned
portfolio of mid-merit generating assets and related marketing and risk
management capabilities. In addition, the combined company's growing,
non-regulated energy and telecommunications businesses, which are focused
on a broad customer base, will further enhance the core business. Our
combination will also improve our ability to grow earnings in the changing
energy marketplace.
As the largest electric delivery company in our region, we will bring high
quality, low cost energy delivery service to more than 1.8 million
electricity and gas customers in the dynamic region comprising Delaware,
the District of Columbia, Maryland, New Jersey and Virginia.
2. How did this merger come about? Why didn't you tell us before?
Pepco and Conectiv continually evaluate business and strategic
opportunities to enhance shareholder and customer value. This combination
offers compelling strategic, competitive and customer advantages that
should allow the combined company to increase its customer base and
achieve operating efficiencies that will benefit all of our constituencies.
Our negotiations were governed by a strict confidentiality agreement. We
announced this transaction as soon as we were able to.
3. When will the merger be completed? What approvals are needed?
We anticipate that the transaction will be completed in approximately 12
months. The merger is conditioned upon, among other things, the approvals
of Pepco and Conectiv stockholders and various state and federal
regulatory agencies. The new holding company will register with the
SEC under the Public Utility Holding Company Act of 1935.
4. What effect will this merger have on staffing? Will there be any
reductions?
The merger will result in a combined company which is larger, more diverse
and provides greater internal opportunities than either company could
provide individually. As in any such transaction, there will inevitably be
some staff redundancy. It is expected that involuntary severances, if any,
will be minimal.
5. What can employees expect in the interim? What should I do?
Employees should continue to focus on executing our business plan and
serving our customers well. We will continue to update you as the process
develops.
6. How will the combined company be structured?
We intend to create a new holding company which will own Pepco and
Conectiv.
7. Who will run the holding company?
Mr. Derrick will be chairman and chief executive officer of the new holding
company. Mr. Cosgrove plans to retire at the completion of the merger. The
board of directors of the holding company will have 12 directors, at least
two of whom will come from the current Conectiv board.
8. Who will run the Conectiv operations? Will there be any changes at Pepco?
Tom Shaw, who is currently president of Conectiv, will continue as
president. No changes are anticipated at Pepco.
9. Where will the holding company be headquartered? What will it be called?
The holding company will have its headquarters in Washington, D.C. Conectiv
will maintain its headquarters in Wilmington, Delaware and will continue to
have significant operations in New Jersey and the Delmarva Peninsula. We
have not yet determined the name of the holding company.
10. Will any facilities be closed?
We have no plans to close facilities as a result of this merger. However,
we will always evaluate our operations, including facilities, to make sure
that we are operating efficiently and will make adjustments when required.
11. What happens to my current benefits and compensation? Will the matching
for my 401K remain the same?
Until the merger closes, employees will continue with their existing plans.
After the close, employees of both companies will have plans that are
comparable to their current compensation and benefit plans for a period of
at least two years.
12. Will you offer any early retirement packages?
There are none being considered at this time.
13. What happens to the negotiated union contracts for either company?
All union contracts will be honored.
14. When and where can I get answers to my questions about the merger?
We will be providing further information between now and the time of
closing the transaction through our normal employee communication channels.
Except for historical statements and discussions, the statements in this press
release constitute "forward-looking statements" within the meaning of the
federal securities laws. These statements contain management's beliefs based on
information currently available to management and on various assumptions
concerning future events. Forward-looking statements are not a guarantee of
future performance or events. They are subject to a number of uncertainties and
other factors, many of which are outside the company's control. In connection
with the transaction, additional important factors that could cause actual
results to differ materially from those in the forward-looking statements
herein include risks and uncertainties relating to delays in obtaining or
adverse conditions contained in, related regulatory approvals, changes in
economic conditions, availability and cost of capital, changes in weather
patterns, changes in laws, regulations or regulatory policies, developments in
legal or public policy doctrines and other presently unknown or unforeseen
factors. These uncertainties and factors could cause actual results to differ
materially from such statements. For a more detailed description of the factors
that could cause such a difference, please see the company's filings with the
United States Securities and Exchange Commission. The company disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. This
understand the results and prospects of the company.
# # #
In connection with the proposed merger, Pepco and Conectiv will file a
joint proxy statement/prospectus with the Securities and Exchange Commission
(the "SEC"). WE URGE INVESTORS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND
ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors will be able to
obtain a copy of the joint proxy statement/prospectus (when available) and
other documents filed by Pepco and Conectiv free of charge at the SEC's website,
http://www.sec.gov or at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, reports, proxy statements and other
information concerning Pepco can be inspected at the offices of the New York
Stock Exchange, Inc., whose address is 20 Broad Street, New York, NY 10005,
where certain securities of Pepco are listed. You can also obtain information
about Pepco at the company's website, the address of which is
http://www.pepco.com. You can obtain information about Conectiv at the
company's website, the address of which is http://www.conectiv.com. In
addition, documents filed by Pepco with the SEC can be obtained by contacting
Pepco at the following address and telephone number: Ellen Sheriff Rogers,
Associate General Counsel, Secretary and Assistant Treasurer, Potomac Electric
Power Company, 1900 Pennsylvania Avenue, N.W., Washington D.C. 20068, telephone
(202) 872-3526. Documents filed with the SEC by Conectiv can be obtained by
contacting Conectiv at the following address and telephone number: Corporate
Secretary, Conectiv, 800 King Street, Wilmington, DE 19899, telephone
(302) 429-3114.
Pepco, its officers, directors and certain other employees of Pepco may be
soliciting proxies from Pepco stockholders in favor of the merger and may be
deemed to be "participants in the solicitation" under the rules of the SEC.
Conectiv, its officers, directors and certain other employees of Conectiv may
be soliciting proxies from Conectiv stockholders in favor of the merger and
may be deemed to be "participants in the solicitation" under the rules of the
SEC. Information regarding the interests of the participants in the
solicitation will be set forth in the joint proxy statement/prospectus when it
becomes available.