Allegheny Power 2013 Annual Report Download - page 170

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21. MERGER
Purchase Price Allocation
On February 25, 2011, the merger between FE and AE closed. Pursuant to the terms of the Agreement and Plan of Merger among
FE, Merger Sub and AE, Merger Sub merged with and into AE, with AE continuing as the surviving corporation and becoming a
wholly owned subsidiary of FE. As part of the merger, AE shareholders received 0.667 of a share of FE common stock for each
share of AE common stock outstanding as of the date the merger was completed, and all outstanding AE equity-based employee
compensation awards were converted into FE equity-based awards on the same basis.
The total consideration in the merger was based on the closing price of a share of FE common stock on February 24, 2011, the
day prior to the date the merger was completed, and was calculated as follows (in millions, except per share data):
Shares of AE common stock outstanding on February 24, 2011 $ 170
Exchange ratio 0.667
Number of shares of FirstEnergy common stock issued 113
Closing price of FirstEnergy common stock on February 24, 2011 38.16
Fair value of shares issued by FirstEnergy 4,327
Fair value of replacement share-based compensation awards relating to pre-merger service 27
Total consideration transferred $ 4,354
The allocation of the total consideration transferred in the merger to the assets acquired and liabilities assumed includes adjustments
for the fair value of Allegheny coal contracts, energy supply contracts, emission allowances, unregulated property, plant and
equipment, derivative instruments, goodwill, intangible assets, long-term debt and accumulated deferred income taxes. The
allocation of the purchase price was as follows:
(In millions)
Current assets $ 1,493
Property, plant and equipment 9,660
Investments 138
Goodwill 872
Other noncurrent assets 1,353
Current liabilities (718)
Noncurrent liabilities (3,450)
Long-term debt and other long-term obligations (4,994)
$ 4,354
The allocation of purchase price in the table above reflects refinements made since the merger date in the determination of the fair
values of income tax benefits, certain coal contracts and an adverse purchase power contract. This primarily resulted in an increase
to property, plant and equipment, other noncurrent assets and current liabilities of approximately $4 million, $91 million and $4
million, respectively, and decreases to current assets and goodwill of $16 million and $80 million. The impact of the refinements on
the amortization of purchase accounting adjustments recorded during 2011 was not significant.
The estimated fair values of the assets acquired and liabilities assumed have been determined based on the accounting guidance
for fair value measurements under GAAP, which defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was recognized as
goodwill. The Allegheny delivery, transmission and unregulated generation businesses have been assigned to the Regulated
Distribution, Regulated Transmission and Competitive Energy Services segments, respectively. The goodwill from the merger of
$872 million has been assigned to the Competitive Energy Services segment based on expected synergies from the merger. The
goodwill is not deductible for tax purposes.
The valuation of the additional intangible assets and liabilities recorded as a result of the merger is as follows: