Dynegy and Illinova completed their merger to create a newcompany, called Dynegy, with market capitalization of more than $10billion. The company has interests in power plants with more than14,000 MW of domestic generating capacity, average worldwide gassales of more than 10 Bcf/d and more than 1.4 million retailcustomers. The combined company has more than $12 billion in assetsand $22 billion in projected annual revenues from energy operationsthroughout North America and Europe.

Management said it expects about 550 employees, 10% of theworkforce, of the combined company to lose their jobs. Almost allof these job cuts, 450 to 500, are expected to be on the Illinovaside. The merger is expected to lead to revenue enhancements andcost savings of between $125 and $165 million, about two-thirds ofwhich will come as revenue enhancements from optimizing Illinova’sexisting generation assets.

Dynegy said it will increase the marketing of Illinova’s 3,800MW of midwestern generation capacity in excess of local marketrequirements and will identify opportunities to expand thecompany’s marketing and trading operations. About 70% of earningsand cash flow are expected to come from non-regulated activitiesthis year, a level expected to increase as the company invests innew generation assets as part of a $5 billion corporate capitalexpenditure program over the next five years.

“Fundamentally, this merger builds a combined company that isone of the few energy industry players with flexible, national,multi-market resources in marketing and trading, power generationand retail outreach,” Dynegy CEO Chuck Watson said yesterday in aconference call. “This transaction has unified these combinedcapabilities at an accelerated pace. Financially, the merger isstrongly accretive in the first year and each year thereafter.Immediate synergies, totaling between $125 million and $165million, will be realized. Two-thirds of the synergies andoperating efficiencies are attributed to revenue opportunitiesrelating to Illinova’s existing portfolio of generation assets.While approximately one-third are attributable to staff reductionsand operating efficiencies, elimination of duplicative corporateprograms and activities and lower capital cost.

“Our objective to own or control 70,000 MW of capacity withinthe next four years remains well on course. We are currentlyworking on seven new generation projects in six states. Eachproject represents nearly 3,000 MW of additional generatingcapacity.” Three of the projects, in North Carolina, Louisiana andIllinois, will be in service before the peak summer season thisyear. “The other four projects, located in Kentucky, Florida,Arizona and Georgia, are all moving forward on schedule.”

Chevron recently invested an additional $200 million in the newDynegy, resulting in a 28% stake, about equal to the company’sposition in Dynegy before the Illinova merger. As part of Chevron’sinterest in Dynegy, it will retain three positions on the mergedcompany’s board of directors. Chevron’s participation in Dynegydates back to 1996 when it combined its gas and liquids businesseswith then NGC Corp., Dynegy’s predecessor. The resulting companywas re-named Dynegy Inc. in June 1998 to recognize its evolutionfrom a natural gas marketer to a dynamic company with a range ofenergy products and services.

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