The rumor mill produced some major headlines yesterday withseveral dominant players in the energy industry apparently inmerger talks. Unicom Corp., parent of Commonwealth Edison, and PECOEnergy Co. were reported to be in discussions about forming a”merger of equals,” while Chevron now has its eye on Phillips.

None of the companies would shed any light on the discussions.Unicom did say its board of directors was meeting yesterday butwould not say if the merger would be the topic of the discussions.An announcement concerning the situation is expected in a week to10 days.

“Our general policy is to not comment on rumor,” said MikePetitti, a spokesman for Unicom. A merger of Chicago-based Unicomand Philadelphia-based PECO Energy would create a utility giantwith combined 1998 revenues of the two companies at more than $12.5billion. The new company would have 5.3 million electric customers.PECO also serves more than 400,000 gas customers in thesoutheastern area of Pennsylvania.

“I actually think that is a good idea,” said Deutsche Banc Alex.Brown analyst Edward Tirello, “because it will put the biggestnuclear fleet in the country together, 20% of the nucleargeneration, and they could cut a tremendous amount of costs. Ithink that would be a tremendous platform. ComEd already said it iskeeping its 10 nukes and it already has gotten its capacity factorfrom 50% to 90% over the last two years. Now if you would putPECO’s expertise on top of that I think they could run fabulously.PECO has Philadelphia Electric’s plants plus the ones they havebeen buying around the country. They own a bunch of power plantswith British Energy through Amerigen.

“Then of course they would have service companies in two bigmetropolitan areas, Chicago and Philadelphia. They would be able tooffer a lot of services and spread the costs over millions ofcustomers. It makes a lot of sense.”

The rumor has ComEd buying PECO for $47/share, which would be a20% premium, said Tirello. “That’s a low-end rate. Premiums havebeen going as high as 40%.” Enron paid a 50% premium for PortlandGeneral and LG&E bought Kentucky Utilities for a 40% premium,he noted.

Reports also said the new company would be based out of Chicago.Unicom has been in the market to acquire a major energy companyever since it closed on the fire sale of 9,772 MW in coal- andgas-fired power plants (see Daily GPI, May 28) earlier this year.An Edison International subsidiary is buying the plants for morethan $5 billion, which Unicom said was $1.76 billion over bookvalue.

This is not the first time Unicom has been mentioned in mergertalks with another company. In July, it was mentioned as a possiblesuitor of Columbia Energy, which was seeking alternatives in aneffort to fight off NiSource’s hostile bid.

Unicom shares close Monday down 50 cents to $37.94/share, whilePECO shares closed down 62 cents to $40.38/share.

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