Combined Unicom and PECO Would Be 'A Monster'
The merger of Commonwealth Edison of Chicago parent Unicom Corp.
and Philadelphia-based PECO Energy Co. will create a company so big
it will take two CEOs to run it, at least initially.
The companies agreed to a merger of equals creating an
as-yet-unnamed holding company worth $31.8 billion ($15.2 billion
in equity market value; $16.6 billion in debt and preferred stock).
For the first years, the CEOs of the merging companies agreed to
share the helm.
The new holding company will be the nation's largest electric
utility based on about five million customers, and it will have
total revenues of $12.4 billion. It will be the nation's fourth
largest power generator, with generation exceeding 22,500 MW and
will be a leader in the growing U.S. wholesale power marketing
business. Based on current equity market values, the new company
would rank third in the industry with a market capitalization of
"This merger catapults the combined company into the top tier of
national energy companies," said PECO CEO Corbin A. McNeill Jr. "We
believe in the competitive and strategic value of size and scope
which will increase our future earnings growth rates, creating
value for shareholders. We will have a strategic portfolio of
low-cost generation assets and significant transmission and
distribution operations covering two of the top five metropolitan
PECO Energy is an electric and gas utility serving 1.5 million
electric customers in the five-county Philadelphia region and more
than 400,000 gas customers. Its power generation group manages a
fleet of 72 units that can provide 5,200 MW of power using a
variety of fuels. In addition, it's nuclear unit operates two
stations-the two-unit Limerick Generating Station, located 21 miles
northwest of Philadelphia, with an output of 1,160 MW per unit, and
the two-unit Peach Bottom Atomic Power Station, located on the
Pennsylvania/Maryland border, with an output of 1,160 MW per unit.
PECO also has a joint venture with British Energy, of Edinburgh,
UK., called AmerGen, which was formed in 1997 to purchase and
operate nuclear plants in the U.S. PECO's energy trading unit
operates a 24-hour trading floor with transactions in 47 states and
"The merger creates world-class generation and power marketing
businesses," said Unicom CEO John W. Rowe. "It creates a base from
which we will build a leading energy delivery business and
establish ourselves as a significant competitor in the emerging
retail energy marketplace.
Chicago-based Unicom Corp. provides electric service across
northern Illinois, serving 3.4 million customers or 70% of the
state's population. ComEd has the largest nuclear fleet in the
country, with a total capacity of 9,400 MW from 10 generating units
at five sites. In March 1999, Unicom announced the sale of its
fossil generation operations, with a total capacity of 9,772 MW, to
Southern California Edison. The sale is expected to close this
"Both PECO and Unicom are experienced operators of nuclear power
plants," said Rowe. "We intend to be the premier nuclear operator
in the nation. We also intend to add more clean, low-cost
generation to our energy portfolio."
Rowe said his first priority will be to improve ComEd's service
and reliability. The utility stumbled this summer when it was faced
with high demand and came under fire from the City of Chicago. In
August, the Chicago Board of Trade had to close an hour early one
day due to a power outage on the ComEd system.
The companies expect to achieve annual cost savings of about
$100 million in the first year, which will grow to more than $180
million by the third year. Sixty percent of these savings will come
from regulated operations and 40% will come from unregulated
operations. The deal is expected to be accretive in the first year
after closing. Workforce reductions of about 5% of the combined
company's 22,500 employees will occur through attrition and
Deutsche Banc Alex. Brown analyst Edward Tirello said he likes
the combination because it creates the biggest fleet of nuclear
generators in the country. The new company will enjoy significant
costs savings by holding 20% of the country's nuclear generation.
"ComEd already said it is keeping its 10 nukes and it already has
gotten its capacity factor from 50% to 90% over the last two years.
Now if you would put PECO's expertise on top of that I think they
could run fabulously."
Merrill Lynch analyst Steve Fleishman also said he likes the
deal because of the substantial generation position the new company
will hold in key markets. The deal also creates a "good"
McNeill and Rowe will be co-CEOs until Dec. 31, 2003. McNeill
will oversee generation and power marketing operations, and Rowe
will oversee transmission and distribution operations, as well as
unregulated retail enterprises.
Tirello said the new company will be too big for one person to
manage right off the bat. "It's a monster. It will create a big
company, but I think it will still have to get bigger." He
suggested a future acquisition of the combined company might be a
utility situated geographically between the merger partners'
existing utilities, such as Pennsylvania's Allegheny Power.
The combined company will be headquartered in Chicago, and the
generation and power marketing operations will have headquarters in
the Philadelphia region. Unicom's and PECO Energy's electric and
gas utility operations will remain separate subsidiaries. The new
holding company will be incorporated in Pennsylvania.
The merger is conditioned upon shareholder and state and federal
regulator approvals and is expected to be completed in 12 months.
Shareholders may receive cash or stock in the new company. The
transaction will be accounted for as a purchase. Each shareholder
of PECO Energy may choose to receive for each PECO Energy share
either one new holding company common share or $45 in cash, subject
to proration; and each shareholder of Unicom may choose to receive
for each Unicom share either 0.95 new holding company common shares
or $42.75 in cash, subject to proration. The cash prices represent
a premium of about 11% to PECO Energy's and Unicom's 10-day average
trading prices through Sept. 22.
On Thursday following the announcement, Unicom closed at $36.25,
down 81 cents; and PECO closed at $36.44, down $1.69.
Joe Fisher, Houston