FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: August 14, 1995
PECO ENERGY COMPANY
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-1401 23-0970240
(State or other (Commission file (IRS Employer
jurisdiction of number) Identification Number)
incorporation)
2301 Market Street, 19101
Philadelphia, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number,
including area code: (215) 841-4000
ITEM 5. OTHER EVENTS
On August 14, 1995, PECO Energy Company issued the following
press release:
PECO ENERGY PROPOSES MERGER WITH PP&L RESOURCES
Will Reduce Rates By $860 Million Over Ten Years
-----------------------------------
PHILADELPHIA (August 14, 1995) - PECO Energy Company (NYSE:PE)
today announced that it has proposed a merger with PP&L Resources, Inc.
(NYSE:PPL) in a stock-for-stock transaction valued at $24 per PP&L
Resources share. The proposal was made in a letter sent today to the
Chairman of PP&L Resources. The aggregate value of the transaction would be
approximately $3.8 billion. The combination will lower rates by
$860 million over ten years for customers of both utilities and provide
shareholders of both companies the opportunity to participate in the
enhanced upside potential presented by this merger.
PECO Energy's proposal calls for a tax-free, stock-for-stock
merger in which each outstanding share of PP&L Resources common stock would
be exchanged for 0.865 shares of PECO Energy common stock. Based upon last
Friday's closing prices, this represents a value of $24 per share, which is
a premium of 27% above PP&L Resources' market value and a premium of
greater than 50% above its book value.
Joseph F. Paquette, Jr., PECO Energy's Chairman, said, "This
merger makes good common sense. PECO Energy and PP&L Resources are
neighbors operating in a single state and have had a close business
relationship for almost 70 years. Competition has accelerated in our
industry and utilities throughout the country are preparing for an even
more competitive future. I believe that consolidation is inevitable in this
environment and that this proposed merger represents the best opportunity
for both PECO Energy and PP&L Resources to be pioneers in improving their
strategic and competitive position."
"A merger of PECO Energy and PP&L Resources would allow the new company
to achieve the scale necessary to compete effectively in the future;
unlock substantial synergies and realize merger savings for the benefit
of shareholders and customers; mitigate potential stranded investment
risk; share each others' best practices; and enhance economic
development in Pennsylvania," Mr. Paquette added.
The full text of the letter follows:
August 14, 1995
William F. Hecht
Chairman, President & Chief Executive Officer
PP&L Resources, Inc.
Two North Ninth Street
Allentown, PA 18101
Dear Bill:
Thank you for your letter of July 31. However, I was deeply
disappointed by your latest refusal to jointly explore the
advantages of a possible combination of PP&L Resources and PECO
Energy. After intensive review, the PECO Energy Board has
concluded that the strategic and financial benefits to both of
our companies' shareholders and customers are too compelling to
ignore. Our strong preference is to work together to complete a
negotiated transaction. However, your repeated refusals to
investigate this opportunity after our earlier meetings, letters,
and discussions dating back to November 1994, make clear the
need to present a specific proposal now so you and your Board can
fully evaluate the potential benefits a combination provides to
PP&L Resources shareholders and customers. You have told me that
you have been studying your strategic alternatives for some time
now; therefore, I see no need to delay further discussions until
late September as suggested in your July 31 response.
Our specific proposal is to commence negotiations
immediately to enter into a tax-free, stock-for-stock merger in
which each outstanding share of PP&L Resources common stock would
be exchanged for 0.865 shares of PECO Energy common stock. Based
upon last Friday's closing prices, this represents a value of $24
per share, which is a premium of 27% above PP&L Resources' market
value and a premium of greater than 50% above its book value. We
would be willing to consider a cash component to our offer, if
you feel it would be important to your shareholders.
This transaction would give PP&L Resources shareholders an
investment in a company with earnings and dividend growth
prospects superior to that which PP&L Resources could maintain on
a stand-alone basis and may eliminate the need for your proposed
equity offering and the resulting dilution of shareholder value.
A PECO Energy/PP&L Resources merger would be unique; our
analyses indicate that it would yield savings of at least $2
billion over ten years. The level of savings is unattainable by
any other combination in the region or by either company on a
stand-alone basis. The majority of these savings would be
achieved through economies of scale in purchasing, elimination of
redundancies between the two companies, and more efficient
capacity utilization taking advantage of the complementary
winter/summer peaks).
Savings of such magnitude would benefit customers of both
utilities in the short-, intermediate-, and long-term while
creating substantial shareholder value. We anticipate that
immediately following the merger of PP&L Resources and PECO
Energy, and subject to regulatory approvals, we would be able to
implement a rate reduction totaling $860 million over ten years
for all classes of customers (residential, commercial, and
industrial) of both companies, coupled with a five-year base rate
freeze. We would propose that this reduction be accomplished by
rolling back most (approximately $40 million per year) of the
rate increase recommended by the administrative law judge in your
current rate case and by putting into effect an equal dollar rate
reduction for PECO Energy customers. In addition, to benefit
customers in the future, approximately $270 million of the merger
savings would be used to accelerate depreciation of generating
assets, thereby reducing rate base, mitigating potentially
stranded investment, and reducing the need for future rate
increases.
This merger represents good public policy. Reducing costs
would give the new streamlined company an advantage in meeting
the competitive challenges of tomorrow while contributing to
Pennsylvania's economic vitality and ability to attract and
retain jobs now.
Our goal is to make the transition transparent to both
companies' customers so they would continue to receive the safe
and reliable energy service to which they are accustomed. We plan
to maintain PP&L Resources as a distinct operating unit with a
continuing corporate presence in Allentown. Following the merger,
we anticipate that regional offices would remain open. Community
and economic development would continue in the combined company.
We envision that the employees involved with generating power and
delivering electric and gas service to our customers would be
largely unaffected. Although it is estimated that an examination
of duplicate functions would result in a reduction of
approximately 1,100 positions across the two companies, we
believe that these reductions can be achieved without significant
layoffs in either company's service territory through a
combination of reduced hiring, attrition, and voluntary
retirement and separation programs.
Given the rapidly changing utility environment and the
significant advantages a combination of our two companies would
produce in terms of synergies and strategic position, I believe
it is appropriate for our respective shareholders and other
constituencies to be apprised of the overall situation.
Accordingly, we are making this letter public.
Bill, while I must reserve the right to go directly to your
shareholders with our proposal, my continuing preference is to
work with you and your Board in pursuing this opportunity. As I
have previously stated, we regard your management team highly,
and respect your efforts to position PP&L Resources for the
changing environment. We believe that our two management groups
and Boards can be integrated in the new company. We are available
to meet with you immediately to discuss the terms of this
proposal.
While we have conducted extensive analysis of PP&L Resources
based on publicly available information, our proposal is
necessarily subject to confirmation through customary due
diligence procedures
as well as negotiation of satisfactory contract terms and
receipt of all required regulatory and shareholder approvals.
I look forward to hearing from you.
Sincerely,
/s/ Joseph F. Paquette, Jr.
It is anticipated that all necessary regulatory and shareholder
approvals can be obtained and that the merger can be completed twelve to
eighteen months after execution of a definitive merger agreement.
Salomon Brothers Inc is acting as financial advisor to PECO Energy.
The combined companies represent $24.5 billion in assets (3rd largest
investor-owned electric and gas utility in the U.S.), $6.8 billion in
revenues (4th in the U.S.) and will serve 3 million customers. The two
companies have a combined generating capacity of over 17,000 MW balanced
among nuclear, coal, hydro, oil, and natural gas fueled plants.
PP&L Resources provides electric service to approximately 1.2 million
homes and businesses throughout a 10,000-square-mile area in 29 counties
of central eastern Pennsylvania. Principal cities in PP&L Resources'
service area include Allentown, Bethlehem, Harrisburg, Hazleton,
Lancaster, Scranton, Wilkes-Barre, and Williamsport. Operating revenues
for 1994 were $2.7 billion. PP&L Resources filed a request with the
Pennsylvania Public Utility Commission (PUC) on December 30, 1994 asking
for an average rate increase of 11.7% or $261 million. On July 28,
1995, an administrative law judge recommended that the PUC grant a 2.8%
or $61.7 million rate increase. The PUC is expected to issue a final
order in late September.
PECO Energy is an operating utility which provides electric and gas
service in southeastern Pennsylvania. The total area served by the
Company covers 2,107 square miles. Electric service is provided to
approximately 1.5 million customers throughout an area of 1,972 square
miles with a population of approximately 3.6 million, including
1.6 million in the City of Philadelphia. Natural gas service is
provided to approximately 377,000 customers throughout a
1,475-square-mile area of southeastern Pennsylvania adjacent to
Philadelphia with a population of approximately 1.9 million. New
records for both electric and gas sales were set in 1994, and the
Company's nuclear operations achieved milestones in safety and
performance. Operating revenues were a record $4.0 billion in 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereto duly authorized.
PECO ENERGY COMPANY
/s/ J. B. Mitchell
J. B. Mitchell
Vice President, Finance
and Treasurer
August 14, 1995