Indiana Energy Inc., parent of Indiana Gas Co., and Sigcorp, theholding company for Southern Indiana Gas and Electric Co. (Sigeco),announced plans to merge and create a new $1.9 billion holdingcompany called Vectern Corp. The transaction was approved by theboards of directors of both companies Monday. If the regulators andthe companies’ shareholders give their nods to the deal, Vectrenwould become the largest combined utility in the state, serving650,000 gas and electric customers.

“The energy industry is converging and successful participantswill be able to offer a broad array of products and services tocustomers,” said Niel Ellerbrook, Indiana Energy CEO. “With thiscombination, our asset mix will be split evenly between gas andelectric, balancing our earnings while positioning the combinedcompany to deliver energy in whatever form our customers need.”

Indiana Energy’s and Sigcorp’s utility companies will remainseparate subsidiaries of Vectren and will continue to operate undertheir respective names. Under the merger agreement, the corporateheadquarters 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 beslightly larger than Nipsco’s 644,000, and the combination wouldmake them the largest combined utility we’ve got,” said RyanSoultz, 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 duplicatecorporate and administrative programs and greater efficiencies inoperations, business processes and purchasing. The merger isexpected to cause 120 people to lose their jobs, a 7% reduction inwork force. Both companies said they will seek alternatives tominimize the impact on current personnel. All union contracts willbe honored.

The two companies are no strangers to each other. They have beenpartners for two years in the energy-related service providerEnergy Systems Group LLC. The partnership provides energymanagement to clients throughout the Midwest.

“Simply put, this combination makes sense. It’s a marriage ofstrengths. Sigcorp has the lowest average retail electric rate inthe state and each company has among the lowest gas rates,” saidAndrew Goebel, Sigcorp’s COO. “Furthermore, over the last severalyears, our customer growth rates have exceeded the nationalaverage.”

The IURC’s Soultz said it’s too early to tell if the combinationwill run into regulatory trouble. “Obviously, we’ll take a longlook at all the aspects of the merger once it has been filed withus. Right now, we don’t know a lot.” The companies anticipate thatthe regulatory processes can be completed in six to nine months.

Under the agreement, Sigcorp shareholders will receive one andone-third shares of the new company’s common stock for each shareof Sigcorp they currently hold. Indiana Energy shareholders willreceive one share of the new company’s common stock for each shareof Indiana Energy they currently hold. The tax-free stock-for-stocktransaction would create a combined company with $1.4 billion inequity and $500 million in debt and subsidiary preferred stockbased upon Indiana Energy’s closing stock price of $22.563 andSigcorp’s closing stock price of $29.50 per share on Friday, June11. Shareholders of each company will control 50% of Vectren’sstock.

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

Ellerbrook said he wants to grow non-regulated operations to apoint where they would be contributing more than 25% of theconsolidated total earnings by 2003. Vectren’s non-utilitysubsidiaries will offer energy-related products and services,fiber-optic based telecommunication services, materials management,locating and trenching services and energy marketing to customersthroughout its service area.

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