Pepco Eyes Conectiv, WSJ Reports
Officials at Potomac Electric Power Co. (Pepco) would not
confirm nor deny a report in The Wall Street Journal last week that
Pepco has made an offer to buy Delaware-based Conectiv Inc. for $2
billion in cash and stock. A spokesman said it might be a good idea
to check back with the Washington, D.C.-based utility this week.
The Journal reported the deal would be announced within a few days.
Conectiv apparently has been out secretly shopping itself for
some time. Suffering from undervalued stock and competitive
pressures due to deregulation, the Wilmington, DE-based utility
company would make a smart addition to its regional neighbor,
Pepco, which is undergoing some of the same pressures and has a
similar business strategy.
Pepco is expected to make an offer, half cash and half stock,
that would value each Conectiv share at $25, a 19% premium as of
the close of trading yesterday. Pepco also is expected to assume $3
billion in Conectiv debt. Conectiv shares rose nearly 10% yesterday
to $20.99, while Pepco shares fell 4% to $20.59.
Conectiv is the parent of Delmarva Power & Light Co. and
Atlantic Energy Inc., serving more than 1.1 million customers in
Delaware, Maryland, New Jersey, Pennsylvania, and Virginia. Pepco
delivers electricity to 1.9 million people in Washington, D.C., and
major portions of Prince George's and Montgomery counties in
suburban Maryland. Last year Pepco's revenue rose 6% to $2.62
billion and its net income rose 45% to $346.5 million. Conectiv
reported 2000 earnings of $2.10/share before nonrecurring charges
and gains, which was an increase of 11% over 1999 earnings.
Pepco attempted expansion before in late 1997, but it aborted a
proposed $3 billion merger with Baltimore Gas & Electric, now
part of Constellation Energy. Pepco sold its power generation
assets last year to Mirant Corp., formerly Southern Energy Inc.
Pepco and Conectiv have developed similar strategies, including
start-up telecommunications businesses, energy services and retail
marketing, but both seek improved financial support for expansion.
The trend among deregulating electric companies is to merge and
form larger transmission units, which would be particularly
attractive in the Mid-Atlantic where there is rapid demand growth.
In addition, Conectiv, which was formed three years ago by the
merger of Atlantic Energy and Delmarva Power, has suffered from
poor stock valuations and has had limited success pursuing its
diversification strategy. It currently is pursuing merchant
generating plant development in its region and is in the process of
selling plants that don't fit its "midmerit" strategy of moderate
operating costs while adding 4,000 MW of new generation in the
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