FOR IMMEDIATE RELEASE
Contact for Brooklyn Union: Contact for LILCO:
Media: Robert Loftus / Robert Mahony Media: Elaine Davis
718-403-2503 / 718-403-2522 516-545-5052
Investors: Jan Childress Investors: William Catacosinos, Jr.
718-403-3382 516-545-4688
Contact for LIPA: Seth Hulkower
516-222-7700
BROOKLYN UNION AND LILCO ANNOUNCE AGREEMENT-IN-PRINCIPLE WITH
LONG ISLAND POWER AUTHORITY
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New York (March 19, 1997) -- The Brooklyn Union Gas Company (NYSE: BU)
and The Long Island Lighting Company (LILCO) (NYSE: LIL) today announced that
they have reached an agreement-in-principle with the Long Island Power Authority
(LIPA), under which LIPA would acquire LILCO's electric transmission and
distribution system, substantially all of its regulatory assets and its share of
the Nine Mile Point 2 nuclear plant through a stock purchase from the holding
company to be formed by Brooklyn Union and LILCO. The holding company, which has
not yet been named, would include the entire operations of Brooklyn Union, and
LILCO's natural gas distribution system, non-nuclear electric generating assets
and certain other assets.
The parties contemplate that LIPA would acquire the stock for
approximately $2.5 billion in cash. It is anticipated that the purchase of stock
by LIPA will result in proceeds to the combined company of approximately $1.7
billion to $1.9 billion after payment of taxes and other short-term liabilities.
Of the $4.5 billion of LILCO debt anticipated to be outstanding at the time of
the closing, approximately $3.6 billion will be assumed or refinanced by LIPA,
and the balance will become the obligation of the combined company or one or
more of its subsidiaries. It is also currently anticipated that $363 million of
the $702 million of the LILCO preferred stock anticipated to be outstanding at
the time of the closing will be exchanged for preferred stock of the combined
company or one of its subsidiaries, and the balance will be redeemed by LIPA.
LIPA anticipates financing the transaction through the issuance of tax-exempt
bonds.
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The transaction is subject to negotiation and the signing of a
definitive agreement, and the approval of the Boards of Directors of Brooklyn
Union and LILCO and the LIPA Board of Trustees. It is anticipated that the
definitive agreement will be subject to certain conditions, including the
receipt of certain tax rulings and customary regulatory approvals. The companies
noted that they are hopeful that a definitive agreement can be reached, and that
all necessary approvals and rulings can be obtained within 18 months from the
signing of the definitive agreement.
Dr. William J. Catacosinos, LILCO chairman and chief executive officer,
said, "This agreement achieves our objective of providing significant rate
reductions for our customers, while protecting the interests of our investors
and employees. The new company will be well positioned to take full advantage of
the emerging competitive energy market."
Mr. Robert B. Catell, Brooklyn Union chairman and chief executive
officer, said, "The transaction we announced in December between Brooklyn Union
and LILCO was a positive development for customers and shareholders. An
agreement with LIPA, and its acquisition of LILCO's regulatory assets, would
make the combined company even stronger and better positioned for competition.
We will be prepared to provide a true range of competitive energy products and
services to customers in New York City and on Long Island."
Shareholders of Brooklyn Union and LILCO will receive a proxy statement
on the Brooklyn Union/LILCO share exchange, which was announced on December 29,
1996. The proxy statement will contain detailed information about the LIPA
transaction. The closing of the Brooklyn Union/LILCO share exchange agreement is
not contingent on the consummation of a transaction with LIPA.
The Brooklyn Union/LILCO share exchange agreement provides that if a
transaction with LIPA, acceptable to Brooklyn Union and LILCO, is completed, the
exchange ratio in the Brooklyn Union/LILCO share exchange will be adjusted with
the effect that ownership of the LILCO shareholders in the combined company will
increase from approximately 66% to approximately 68%. The number of shares of
the new company that each share of LILCO will be exchanged for will be increased
from .803 to .880 shares if a LIPA transaction is consummated. In either case,
each share of Brooklyn Union will be exchanged for one share of the new company.
The agreement-in-principle provides that the combined company would
enter into a Management Services Agreement with LIPA to manage LIPA's assets,
including its electric transmission and distribution system, and to ensure
system reliability, including storm restoration. LIPA would have ultimate
responsibility, authority and control over the assets and operation of the
transmission and distribution system. The initial term of the Management
Services Agreement will be eight years. Thereafter, the management of LIPA's
assets would be awarded through a competitive bidding process. The combined
company agrees to honor existing labor contracts.
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Additionally, LIPA and the combined company would enter into a Power
Supply Agreement under which the combined company would supply and manage a
portion of LIPA's power requirements for an initial period of 15 years. Under
the agreement, LIPA would purchase the approximately 3,900 megawatts of Long
Island generation capacity currently owned by LILCO. LIPA would also assume all
existing LILCO contracts for firm power purchases and transmission agreements.
The Power Supply Agreement will have a capacity "ramp down" option
beginning in year seven in an aggregate potential reduction amount of
approximately 1,500 megawatts. At the end of the initial 15-year contract
period, LIPA would have the option of renewing the Power Supply Agreement for
all capacity upon which it has not exercised its "ramp down" option. In
addition, after the third year, LIPA will have a one-year window in which it
could purchase all of the generating assets for fair market value.
A transaction under a Brooklyn Union-LILCO-LIPA agreement would most
likely be accounted for as a purchase, as opposed to the previously announced
Brooklyn Union/LILCO share exchange agreement which is intended to be accounted
for as a pooling of interests. Brooklyn Union and LILCO expect to continue their
current dividend policies until a transaction is consummated.
The Brooklyn Union-LILCO-LIPA transaction must be approved or reviewed
by various regulatory agencies including: Public Authorities Control Board, New
York State Public Service Commission, Federal Energy Regulatory Commission,
Nuclear Regulatory Commission and the Securities and Exchange Commission.
With the closing of the transaction, the Shoreham property tax lawsuit
between LILCO and various taxing authorities in Suffolk County would be settled
by LIPA and those taxing authorities.
Brooklyn Union, with 3,000 employees, distributes natural gas to 1.1
million customers in the New York City boroughs of Brooklyn and Staten Island
and in two-thirds of the borough of Queens. Brooklyn Union's service territory
covers 187 square miles with a population of approximately 4 million people.
Brooklyn Union has energy-related investments in gas exploration, production and
marketing domestically and internationally, as well as energy services in the
United States, including cogeneration products, pipeline transportation and gas
storage facilities.
LILCO's 5,400 employees provide electric and gas service to more than 1
million customers in Nassau and Suffolk Counties and on the Rockaway Peninsula
in Queens County. LILCO's service territory covers 1,230 square miles with a
population of approximately 2.7 million people.
The Long Island Power Authority is a corporate agency of the State of
New York and was created by State legislation enacted in 1986 with the authority
to acquire LILCO. LIPA is governed by a 15 member Board of Trustees. Nine of the
Trustees, including the Chairman, Frank Zarb, are appointed by the Governor,
three of the Trustees are appointed by the Senate Majority Leader, and three of
the Trustees are appointed by the Assembly Speaker.
# # #
TRANSACTION STRUCTURE CONTEMPLATED BY
BROOKLYN UNION-LILCO-LIPA
LIPA would acquire LILCO's electric transmission and distribution system,
substantially all of its regulatory assets and its share of the Nine Mile
Point 2 nuclear plant through a stock purchase from the holding company to
be formed by Brooklyn Union and LILCO. The holding company, which has not
yet been named, would be comprised of the entire operations of Brooklyn
Union, and LILCO's natural gas distribution system, non-nuclear electric
generating assets and certain other assets.
The combined company would enter into a Management Services Agreement with LIPA
to manage LIPA's assets, including its electric transmission and
distribution system.
LIPA and the combined company would enter into a Power Supply Agreement under
which the combined company would supply and manage a portion of LIPA's
power requirements.
- ------------------------------------- --------------
| Shareholders of Combined Company | | LIPA |
| (Former Shareholders of | |Tax-Exempt |
| Brooklyn Union and LILCO) | |Bondholders |
- ------------------------------------- --------------
|
- ------------------------------------- |
| | |
| COMBINED COMPANY | |
| (To Be Named) | |
- ------------------------------------- |
| | --------------------
| | /--| |
| | / | |
Subsidiary Subsidiary / | LIPA |
| | / | |
| | Management / | |
| | Services | |
--------------------- | and | |
| | | Power Supply --------------------
| Brooklyn | | / Agreements |
| Union | | / |
| | | / Subsidiary
--------------------- | / |
| / |
- ---------------------------------------- -------------------------------------
| NEWCO | | LILCO |
| | | o LILCO Electric Transmission and |
| o LILCO Natural Gas Distribution | | Distribution |
| o LILCO Non-Nuclear Generation Assets| | o Nine Mile Point 2 |
| o Certain Other LILCO Assets | | o Regulatory Assets |
- ---------------------------------------- | o IPP/Power Supply Contracts |
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