FirstEnergy confirms GPU deal

Confirming earlier reports, FirstEnergy Corp., Akron, Ohio, agreed on Tuesday to acquire GPU Inc. for $4.5 billion in cash and stock, creating the sixth largest investor-owned US electric system. GPU had been considered a potential target since selling off its generation. FirstEnergy Chairman Peter Burg said the transaction will allow FirstEnergy to realize its strategic vision of being the premier retail energy and related services provider in the Northeast.


Confirming earlier reports, FirstEnergy Corp., Akron, Ohio, agreed on Tuesday to acquire GPU Inc. for $4.5 billion in cash and stock, creating the sixth largest investor-owned US electric system.

FirstEnergy said it would also would assume about $7.4 billion of GPU's debt and preferred stock in the deal.

The transaction is expected to begin contributing to earnings/share and cash flow upon completion, FirstEnergy said. Under the agreement, GPU shareholders would receive the equivalent of $36.50 for each share of GPU common stock they own, payable in cash or in FirstEnergy common stock, so long as FirstEnergy's common stock price is between $24.24 and $29.63.

The market was taking a relatively negative view of the proposed transaction and some analysts were cutting their FirstEnergy ratings based on the length of time it will take to complete the deal. FirstEnergy stock closed Friday at $26.40/share and was trading down at $24.56 at mid-morning Tuesday. The companies said they expect that the transaction can be completed within 12 months.

Investors are looking for deals with the potential for rapid growth in the nonregulated sector of the market not the regulated side, says Jeff Dietert, an analyst with Houston's Simmons & Co.

"They are looking for utilities that can move deregulation forward in their states," he says. "That is something to look for in these deals."

Each GPU shareholder would be able to elect the form of consideration they wish to receive, subject to proration so that the aggregate consideration to all GPU shareholders will be 50% cash and 50% FirstEnergy common stock, the companies said in a joint statement.

Together the companies serve nearly 4.3 million retail customers in Ohio, Pennsylvania, and New Jersey, or nearly double FirstEnergy's existing customer base in the region. FirstEnergy Chairman Peter Burg said the transaction will allow FirstEnergy to realize its strategic vision of "being the premier retail energy and related services provider" in the Northeast "while offering substantial benefits that should grow both our top and bottom lines."

Takeover target
He said FirstEnergy's generation capacity; may help contribute to meeting GPU's "provider-of-last-resort" requirements for electricity customers in it Pennsylvania and New Jersey service areas. GPU, once the operator of the infamous Three Mile Island nuclear plant in Pennsylvania, has been considered a potential takeover target since selling off its generation.

FirstEnergy and GPU said they the transaction to save about 5% of combined annual nongeneration operations and maintenance expenses. Savings are expected to come from the eliminating duplication, improved operating efficiencies, more efficient use of generation assets, and the combination of the companies' work forces

Financing for the transaction is expected to come from a combination of long-term debt and bank credit lines.

As of June 30, 2000, the combined revenues of FirstEnergy and GPU for the previous 12 months totaled $12.0 billion and assets of the companies totaled $38.6 billion.

The combined company's principal electric utility operating companies would include FirstEnergy's Ohio Edison Co. and its Pennsylvania Power Co. subsidiary, the Cleveland Electric Illuminating Co., and Toledo Edison Co., as well as GPU Energy's electric utility operating companies�Jersey Central Power & Light Co., Metropolitan Edison Co., and Pennsylvania Electric Co.

In addition, the combination would make FirstEnergy's mechanical contracting and construction business the fourth largest in the US, with revenues of $1 billion/year. The companies said they expect to achieve revenue growth from the combination of their mechanical contracting and construction operations and increased electricity, natural gas, and telecommunications sales in unregulated markets

Fred D. Hafer, 59, would become chairman of FirstEnergy until his retirement at age 62. Peter Burg, 54, would become vice chairman and remain chief executive officer of FirstEnergy. After the combination, FirstEnergy would remain headquartered in Akron.

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