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Indiana Firms Seek to Form State's Largest Utility

Indiana Firms Seek to Form State's Largest Utility

Indiana Energy Inc., parent of Indiana Gas Co., and Sigcorp, the holding company for Southern Indiana Gas and Electric Co. (Sigeco), announced plans to merge and create a new $1.9 billion holding company called Vectern Corp. The transaction was approved by the boards of directors of both companies Monday. If the regulators and the companies' shareholders give their nods to the deal, Vectren would become the largest combined utility in the state, serving 650,000 gas and electric customers.

"The energy industry is converging and successful participants will be able to offer a broad array of products and services to customers," said Niel Ellerbrook, Indiana Energy CEO. "With this combination, our asset mix will be split evenly between gas and electric, balancing our earnings while positioning the combined company to deliver energy in whatever form our customers need."

Indiana Energy's and Sigcorp's utility companies will remain separate subsidiaries of Vectren and will continue to operate under their respective names. Under the merger agreement, the corporate headquarters of Vectren and of Sigeco will be in Evansville, IN. Indiana Gas Co. will continue to be headquartered in Indianapolis.

"From our latest numbers, their 650,000 customers would be slightly larger than Nipsco's 644,000, and the combination would make them the largest combined utility we've got," said Ryan Soultz, a spokesman for the Indiana Utility Regulatory Commission (IURC).

By merging, the two companies expect to realize net savings of $200 million over 10 years from the elimination of duplicate corporate and administrative programs and greater efficiencies in operations, business processes and purchasing. The merger is expected to cause 120 people to lose their jobs, a 7% reduction in work force. Both companies said they will seek alternatives to minimize the impact on current personnel. All union contracts will be honored.

The two companies are no strangers to each other. They have been partners for two years in the energy-related service provider Energy Systems Group LLC. The partnership provides energy management to clients throughout the Midwest.

"Simply put, this combination makes sense. It's a marriage of strengths. Sigcorp has the lowest average retail electric rate in the state and each company has among the lowest gas rates," said Andrew Goebel, Sigcorp's COO. "Furthermore, over the last several years, our customer growth rates have exceeded the national average."

The IURC's Soultz said it's too early to tell if the combination will run into regulatory trouble. "Obviously, we'll take a long look at all the aspects of the merger once it has been filed with us. Right now, we don't know a lot." The companies anticipate that the regulatory processes can be completed in six to nine months.

Under the agreement, Sigcorp shareholders will receive one and one-third shares of the new company's common stock for each share of Sigcorp they currently hold. Indiana Energy shareholders will receive one share of the new company's common stock for each share of Indiana Energy they currently hold. The tax-free stock-for-stock transaction would create a combined company with $1.4 billion in equity and $500 million in debt and subsidiary preferred stock based upon Indiana Energy's closing stock price of $22.563 and Sigcorp's closing stock price of $29.50 per share on Friday, June 11. Shareholders of each company will control 50% of Vectren's stock.

Following the merger, Ellerbrook will be chairman and CEO of the new company and Goebel will be president and COO. Indiana Energy Chairman L.A. Ferger, and Sigcorp Chairman Ronald Reherman, will retire but will serve on the board of directors of the new company. Both Indiana Energy and Sigcorp each will designate six directors to the new company's board.

Ellerbrook said he wants to grow non-regulated operations to a point where they would be contributing more than 25% of the consolidated total earnings by 2003. Vectren's non-utility subsidiaries will offer energy-related products and services, fiber-optic based telecommunication services, materials management, locating and trenching services and energy marketing to customers throughout its service area.

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