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Florida Public Utilities, Chesapeake Utilities Propose Merger

In a move that would create a $595 million combined energy company serving 200,000 customers in three states, Chesapeake Utilities Corp. (CPK) and Florida Public Utilities Co. (FPU) said Monday they have agreed to merge FPU with a CPK subsidiary.

Under terms of the all-stock transaction, holders of FPU common stock will receive 0.405 shares of CPK common stock in exchange for each outstanding FPU share. Based on the average of CPK's closing stock price on the 15 trading days prior to April 15, the transaction has an approximate value of $12.20/FPU share. The companies said they expect the transaction to be earnings neutral or slightly accretive in 2010 and meaningfully accretive in 2011.

By early afternoon Monday CPK shares were trading at $28.25, down $1.40 from Friday's close of $29.65/share; FPU shares were trading at $11.40, up $1.00 from Friday's $10.40 close.

The merger is intended to qualify as a tax-free reorganization and is subject to approval by shareholders of both companies. The merger was approved by both companies' boards of directors on Friday. It must be approved by federal and state regulatory authorities, including the Delaware Public Service Commission and the Maryland Public Service Commission. The companies anticipate closing of the transaction during the fourth quarter.

At the close of the merger FPU would become a wholly owned subsidiary of CPK and would initially continue to operate as a separate business unit. Over time, FPU and Central Florida Gas -- a division of CPK -- would integrate their operations, conducting business under the name Florida Public Utilities. CPK CEO John Schimkaitis would become chairman and CEO of the new Florida Public Utilities. Current FPU CEO Jack English would be retained as a consultant for up to 24 months following the merger and two members of the current FPU board of directors would join the CPK board.

The company created by the merger would have approximately 117,000 natural gas customers, 31,000 electric customers and 48,000 propane customers in Delaware, Maryland and Florida. CPK and FPU reported $291.4 million and $168.5 million in revenues, respectively, and $13.6 million and $3.5 million in net income, respectively, for 2008.

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