BGE PEPCO
Potomac Electric Power Company
NEWS RELEASE
MEDIA CONTACT:
Jo-Anne Sinnott-(212) 880-5330
Maria Gonzalez (Cellular)-(203) 554-7491
Ogilvy Adams & Rinehart
Arthur J. Slusark - (410) 234-7436
Baltimore Gas and Electric Company
Tome Welle - (202) 872-2680
Potomac Electric Power Company
BGE AND PEPCO COMBINE TO FORM $15 BILLION COMPANY
Largest Combination Of Two Electric Utility Companies To Date
ANNAPOLIS, MARYLAND, September 25, 1995 - In a joint statement
today, Christian H. Poindexter, Chairman of the Board and CEO of Baltimore Gas
and Electric Company (NYSE: BGE), and Edward F. Mitchell, Chairman of the Board
and CEO of Potomac Electric Power Company (NYSE: POM), announced that their
respective Boards of Directors have unanimously approved a strategic business
combination of the two companies. This merger will create a regional energy
company with customers in Maryland and Washington, D.C. The new company will be
one of the ten largest electric utility
companies in the United States, serving a population of 4.5 million with 1.8
million electric customers and over 530,000 gas customers. The transaction will
create a new company with assets exceeding $15 billion and annual revenues of
approximately $5 billion.
Mr. Poindexter, who will serve as CEO of the new combined
company, stated that "with the challenges facing the energy industry today, this
combination creates a larger, stronger company that allows us to compete in a
way neither of our companies could do alone. We will be able to provide service
at a lower cost than would otherwise be possible."
Mr. Mitchell, who will serve as Chairman of the Board of the
new company, added "this merger combines two financially strong, low-cost energy
providers with common values and strategies and highly compatible operations and
management. In this competitive world the low-cost producers will be the
winners. We intend to be a winner."
The agreement calls for shareholders of Baltimore Gas and
Electric Company to receive one share of stock in the new company for each share
of BGE common stock owned. Holders of Potomac Electric Power Company common
stock will receive a 0.997 share of stock in the new company for each share of
PEPCO stock owned. This exchange ratio approximates a 20% premium to the average
PEPCO trading price over the previous week's level. BGE and PEPCO currently have
148 million and 118 million common shares outstanding, respectively.
DIVIDEND POLICY
The new company will adopt BGE's dividend policy. The annual
dividend at the expected 1997 closing date will be $1.67 per share. This
compares to BGE's current $1.56 dividend and PEPCO's current annual dividend of
$1.66.
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The new company's dividend strategy is consistent with BGE's
current dividend payout ratio goal of approximately 70%. The dividend at closing
will be 7% greater than BGE's current dividend. Both companies' shareholders are
expected to benefit over time from a strategy of dividend growth.
NEW COMPANY MANAGEMENT
The new company's management team will combine the talents of
seasoned executives from both companies. Mr. Mitchell, PEPCO's Chairman and CEO,
will be Chairman of the new company's Board of Directors following the
completion of the merger. Mr. Poindexter, BGE's Chairman and CEO, will be the
CEO of the new company and will succeed Mr. Mitchell as Chairman of the Board
one year after the merger takes place. BGE's President, Edward A. Crooke, will
be Vice Chairman of the new company and will be Chairman of the Board of
non-regulated subsidiaries. Mr. Crooke will also be responsible for the new
company's strategic planning efforts and new business initiatives. John M.
Derrick, Jr., PEPCO's President, will be President and COO of the new company
and will be responsible for the day-to-day operations of the company's utility
business. The new company's Board of Directors will consist of 16 members, with
9 being appointed from BGE's current Board and 7 from PEPCO's current Board.
NEW COMPANY STRUCTURE
A name will be selected for the new company in the near
future. The new company will be structured as a single utility company. The
non-utility operations of both companies will be combined, as appropriate, as
subsidiaries of the new company. This transaction is expected to qualify as a
pooling of interests and as a tax-free exchange of shares for the holders of
each company's common stock.
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BGE and PEPCO have agreed that the new company will be
headquartered between Baltimore and Washington in the Annapolis, Maryland area,
and that the new company will continue to maintain a significant presence in
both Baltimore and Washington.
EXPECTED COMBINATION SAVINGS
Savings from the combined utility systems are expected to be
substantial, approximately $1.3 billion over a ten-year period. These savings
will be accomplished through the elimination of duplicate support services and
field operations, economies of centralized purchasing and the reduction of
corporate expenses. Synergies will be achieved by combining the two utility
systems in an integrated, non-holding company structure and will be enhanced by
the contiguous nature of the two systems. Opportunities will be created through
enhanced transmission interconnections. The expected elimination of duplicate
positions will result in reductions in the total combined workforce of
approximately 10%. Additional savings may be achieved over time from combining
the companies' non-regulated operations as well.
EARNINGS IMPACT
The combination should result in little or no earnings
dilution in the first year of operations. Earnings are expected to be positively
impacted thereafter as synergies are realized.
REQUIRED APPROVALS
The Merger Agreement is subject to the approval by
shareholders of both companies and certain regulatory agencies including:
o The Federal Energy Regulatory Commission
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o The Public Service Commissions of Maryland and the District of Columbia
o The Nuclear Regulatory Commission
o The Securities & Exchange Commission
All required approvals are expected to be completed by the early part of 1997.
Shareholder approval will be sought in early 1996.
KEYS REASONS FOR THE COMBINATION
Mr. Derrick, PEPCO's President, stated that "the combination
of the transmission and distribution systems provides more options to meet
future generation needs." In addition, the companies presented the following key
reasons for the combination: o It creates additional shareholder value through
increased efficiencies and reduced costs resulting in a financially stronger and
more competitive company.
o It creates a larger, stronger company well-positioned to prosper in an
increasingly competitive environment.
o It combines two of the lower-cost energy companies in the Mid-Atlantic
area having no "stranded" high-cost generating plants.
o Customers will benefit from reduced costs of the combined company which
will keep rates low into the future.
o The new company will be well-positioned to take advantage of future
strategic opportunities as competition intensifies.
o The combination of the two companies' diversified operations will
provide the financial and management resources necessary to succeed in
a changing business environment.
DESCRIPTION OF COMPANIES
BGE is an investor-owned company that combines its core
utility business with diversified non-utility operations. Founded 1816, BGE is
the nation's first gas utility and one of its earliest electric utilities, with
a tradition of superior, low-cost service and
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reliability. With assets of more than $8 billion, BGE serves more than 1 million
business and residential electric customers and 530,000 gas customers in an
economically diverse 2,300-square-mile area encompassing Baltimore City and all
or part of 10 Central Maryland Countries.
PEPCO is an investor-owned electric utility, founded in 1896,
serving the electricity needs of 1.9 million people in the Washington
Metropolitan area. PEPCO's 640- square-mile service territory includes the
District of Columbia and major portions of Montgomery and Prince George's
Countries in Maryland. PEPCO also sells electricity at wholesale to Southern
Maryland Electric Cooperative, Inc. PEPCO's service territory is unique, with
virtually no heavy industry. The Washington Metropolitan area remains one of the
nation's major markets with a well-educated and affluent population.
# # #
Two-Page Fact Sheet follow.
Photographs available through AP Photo Express.
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BGE-PEPCO Merger
Fact Sheet
Information As Of December 31, 1994 Unless Otherwise Noted
BGE PEPCO COMBINED
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I. Financial Statement Information:
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Total Assets $8.1 Billion $7.0 Billion $15.1 Billion
9th Largest Utility
Consolidated Revenues $2.8 Billion $2.0 Billion $4.8 Billion
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II. Common Stock Information:
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Earnings Per Share $1.93 $1.79
Current Annual Dividend Per Share $1.56 $1.66 $1.67
Current Stock Price as of 9/22/95 $26 1/8 $21 1/2
Current Dividend Yield as of 9/22/95 6.0% 7.7%
Current Market-to-Book 142% 140%
Common Shares Outstanding 148 million 118 million
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III. Capital Structure Information:
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Credit Ratings
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Sr. Secured Debt A+/A1 A/A1
Unsecured Debt A/A2 A-/A2
Preferred Stock A/"a1" A-/"a1"
Preference Stock A/"a2" -
Consolidated Capital Structure
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Short-Term Debt 1.0% 4.4%
Long-Term Debt 46.1% 54.2%
Preferred/Preference Stock 8.9% 5.0%
Common Equity 44.0% 36.4%
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IV. Service Territory & Customer Information:
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Service Territory
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- -Electric 2,300 sq. miles 640 sq. 2,940 sq. miles
miles
- -Gas 627 sq. miles -- 627 sq. miles
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Population
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- -Electric 2,625,000 1,900,000 4,525,000
- -Gas 1,980,000 -- 1,980,000
Customers
- -Electric 1,084,515 672,141 1,756,656
- -Gas 537,397 -- 537,397
Total Electric Sales-MWH 27,454,000 25,546,210 53,000,210
Electric Sales by Customer
- -Residential 39% 26% 33%
- -Commercial 45% 46% 45%
- -Industrial 16% -- 8%
- -Government - 19% 9%
- -Wholesale - 9% 5%
Employees
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- -Utility 7,296 4,524
- -Non-Utility 655 37
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Total 7,951 4,561
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V. Operating Statistics:
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Total Generating Capability 6,741 6,723 13,464
Generating Capability by Fuel Type
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Nuclear 25% 0% 12%
Coal 39% 45% 42%
Oil, Gas & Hydro 26% 46% 36%
Interchange & Purchases 10% 9% 10%
% Generation by Fuel Type
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Nuclear 39% 0% 22%
Coal 56% 69% 62%
Oil, Gas & Hydro 6% 18% 11%
Interchange & Purchases -1% 13% 5%
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