Delmarva Power & Light Co. and Atlantic Energy, Inc. have signed a definitive merger agreement creating a parent company with $2.2 billion in equity, the companies said yesterday.
The deal, which was unanimously approved by both companies' boards of directors, will create a company with $5.6 billion in assets and 1 million customers in Maryland, Delaware, New Jersey and Virginia's Eastern Shore.
The companies said they expect the merger to be completed in 12 to 18 months.
Atlantic's shares jumped 87.50 cents to $18 on the news, while Delmarva Power's shares were up 37.50 cents to close at $21 each.
"By joining forces, we become a stronger company that is better positioned to thrive in an increasingly competitive energy industry," said Howard E. Cosgrove, chairman and chief executive officer of Wilmington, Del.-based Delmarva Power. "Together, we create a larger regional platform from which to launch new energy-related products and services throughout the mid-Atlantic region."
Jerrold L. Jacobs, chairman and chief executive of Atlantic Energy, the Egg Harbor Township, N.J.-based company, said the merger will "unlock substantial synergies and realize savings that will benefit our shareholders and customers."
"The Atlantic City region is promising significant growth led by the unprecedented expansion of the city's hotel casino industry," Jacobs said.
The companies expect to save $500 million over 10 years by eliminating redundant operations and combining their work forces. About 400 of a total 4,000 workers are expected to lose jobs.
Cosgrove will become chairman and chief executive officer of the new company, and Jacobs, Atlantic Energy's chairman and chief executive, will retire and serve the new company as vice chairman of the board.
Michael J. Chesser, president and chief operating officer of Atlantic Energy, will become president and chief operating officer of the new company.
The board of the new holding company will consist of the directors of each company at the time of the merger, the companies said.
The new company will be based in Wilmington, but the companies said executive offices will be maintained in Atlantic City, N.J.
Under the terms of the transaction, Delmarva Power and Atlantic will be merged into a new holding company.
Delmarva shareholders will receive one share of the new company's common stock for each share of Delmarva Power.
Atlantic Energy shareholders will receive 0.75 shares of the new company's stock and 0.125 shares of the new company's Class A common stock for each share of Atlantic they hold.
Utilities have been scrambling for merger partners ever since the industry was deregulated several years ago.
The need to gain heft is crucial if companies want to compete in the future, said Robin Rather, a utilities analyst with Edward Jones in St. Louis.
"The larger you are, the more power you have to secure your customers and make other acquisitions," she said.
Rather said there are about 12 pending mergers among U.S. utilities.
In September, Baltimore Gas and Electric Co. made a merger deal with Potomac Electric Power Co. creating the nation's ninth-largest power company.
The agreement -- the largest ever between two utilities -- will result in an entity with $15 billion in assets that serves a population of 4.5 million in Maryland and Washington when completed in early 1997.
Cosgrove said the merger was not a defensive measure to protect Delmarva from being acquired by another utility.
"Absolutely not," he said.
Delmarva Power is the larger of the two companies with $2.9 billion in assets and $543 million in revenues for the first half of the year. It has 436,000 electric customers and 98,000 gas customers.
Atlantic Electric has $2.7 billion in assets and revenues of $471 million. The company has 473,000 customers.
Edward Tirello, a utility analyst with NatWest Securities Corp., said the deal should help the companies compete more effectively in their regions, but the new company needs to grow. He expects the newly merged companies to make acquisitions.
"One million customers is too small," he said. "But it's a good first step."
Pub Date: 8/13/96