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PECO, Unicom to merge
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September 23, 1999: 3:22 p.m. ET
Deal to combine Philadelphia, Chicago area utilities; 5% work force cut seen
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NEW YORK (CNNfn) - PECO Energy Co. of Philadelphia and Unicom Corp. of Chicago announced a merger Thursday that the companies said will form the nation's largest electric utility, with a stock value of more than $15 billion.
PECO and Unicom said they expect the merger to result in a 5 percent reduction in the consolidated work force of 22,500. But they said all existing union contracts will be honored.
The merger, which has been unanimously approved by both companies' boards, will create a new holding company with a total value of about $31.8 billion -- $15.2 billion in equity market value and $16.6 billion in debt and preferred stock.
PECO Energy Co. (PE) is an electric and gas utility with 6,500 employees serving 1.5 million electric customers in the five-county Philadelphia region and more than 400,000 natural gas customers.
Unicom Corp. (UCM) is the parent of Commonwealth Edison Co., which provides electric service across northern Illinois, serving about 3.4 million customers, or 70 percent of the state's population. ComEd has the largest nuclear capacity in the country, with a total of 9,400 megawatts from 10 generating units at five sites.
Shares of PECO fell 1-13/16 to 36-5/16 in late afternoon trading, while shares of Unicom dipped 9/16 to 36-1/2.
Five million customers
The new company will have about 5 million customers and total revenue of $12.4 billion. The new entity will be the nation's fourth-largest power generator, with more than 22,500 megawatts, PECO and Unicom said.
The resulting entity will account for 17 percent of nuclear power generating plants in the country. Nuclear energy provides about 20 percent of the nation's electricity.
"I think they're making a bet that nuclear energy will probably be one of the more efficient and least expensive ways to generate power in the future," said Steve Marascia, an analyst at Branch, Cabell.
Marascia said the utility sector has seen a series of mergers and acquisitions as companies come together to offer more services.
"In this very competitive market environment, one way to keep your customers is to give them value-added services," he said.
"We think the consolidations are consequence of increasing competition," said Thomas Hamlin, an analyst at First Union Capital Holdings. "We think the deals are going to get bigger. We have about 100 utility companies nationwide and some people feel that's about 75 to 80 too many."
Headquarters in Chicago
While federal law makes it difficult for utilities that do not have adjoining territories to merge, Hamlin said the statutes are dated and should not pose a threat to the deal.
Corbin McNeill Jr., chief executive officer of PECO, and Unicom CEO John Rowe will serve as co-chairmen of the new company. The new holding company will be headquartered in Chicago and be named at a later date.
The two executives said the merger will save both companies acquisition costs and create a heavyweight in the energy field as deregulation moves through the sector.
PECO and Unicom said they expect cost savings of about $100 million in the first year after the deal.
Based on about 182.4 million shares of PECO Energy expected to be outstanding immediately prior to the close of the transaction, PECO Energy shareholders will receive about 165.7 million shares in the new holding company and $750 million in cash.
Based on about 191.3 million shares on Unicom expected to be outstanding at the same time, Unicom shareholders will receive about 165.1 million shares in the new holding company and $750 million in cash.
Current PECO and Unicom shareholders, as a group, will each own about 50 percent of the new company.
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