Indiana Firms Seek to Form State's Largest Utility
In an effort to build a larger customer base, cut costs and offer a
wider variety of commodities and services, Indiana Energy, parent of Indiana
Gas, announced plans to merge with Sigcorp, the holding company for Southern
Indiana Gas and Electric (Sigeco). The merger of equals will create a new
$1.9 billion holding company called Vectren Corp.
The transaction was approved by the boards of directors of both companies
but still requires regulatory and shareholder approvals. Vectren would
be the largest combined utility in the state, serving 650,000 gas and electric
customers and slightly surpassing neighboring LDC Northern Indiana Public
Service, which is actively pursuing a merger of its own with Columbia Energy
Group (see NGI June 14).
"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."
The merger of the two Indiana utilities was "just an example of
a trend we've seen in which the smaller utilities get together to create
critical mass," said Barry Abramson, an energy analyst with PaineWebber.
"If they want to control their destiny they have to get bigger than
they are. That's a good fit of two local companies that are in good shape
and will be able to benefit from post-merger cost cutting."
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 will continue to be
headquartered in Indianapolis.
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
"This merger does two things," said Zach Wagner, an analyst
at St. Louis-based Edward Jones. "It creates a strong utility company
and a strong non-regulated firm as well. On the utility side, both these
companies are strong and low-cost. When customer choice reaches this service
area, customers have a tendency to flock to companies like this newly-created
Vectren. On the non regulated side, Indiana Energy's gas and electric marketing
operations will combine nicely with Sigcorp's telecommunications division
to create a powerful new entity."
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
"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."
Ryan Soultz, a spokesman for the Indiana Utility Regulatory Commission
(IURC), 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.