Eversource 1999 Annual Report Download - page 24

prior to the closing. So long as such average trading prices are
between $36 and $46 per share, the total value of the Con Edison
common stock received by NU shareholders will be $25 per
share. NU shareholders also have the right to receive an addi-
tional $1 per share in value as long as definitive agreements to
sell its interests (other than that now held by PSNH) in Millstone 2
and 3 are entered into and recommended by the Utility Operations
and Management Unit of the Connecticut Department of Public
Utility Control (DPUC) on or prior to the later of December 31,
2000, or the closing of the merger. In addition, another $0.0034
per share per day for every day beyond August 5, 2000, that
the merger is not consummated is added to the purchase price.
If Con Edison’s stock price is below $36 per share, then the
value received for the stock portion will be less than $25 per
share. The merger will create the nation’s largest electric
distribution system with more than 5 million customers and
one of the 15 largest natural gas distribution systems with 1.4
million customers.
NU and Con Edison filed with various state and federal
regulatory bodies in January 2000 to secure approval of the
merger. The two companies expect these regulatory proceed-
ings can be completed by the end of July 2000.
Also in 1999, NU management concluded that the Northeast
Utilities system (NU system) would be stronger and customers
could be better served if NU reentered the natural gas distribu-
tion business that it had exited in 1989 and examined several
potential businesses in New England. By adding gas to NU’s
energy mix, NU will be able to broaden its services to its existing
customers and will have additional opportunities for long-term
growth. In June 1999, NU announced an agreement to merge
with Yankee. Yankee is the natural gas division that CL&P
divested in 1989. Yankee shareholders will receive $45 per share,
or $479.6 million in cash and NU common stock. In addition,
NU will assume Yankee’s outstanding debt of approximately
$240.8 million. Yankee shareholders will receive 45 percent of
the $479.6 million in NU common stock and 55 percent in cash.
NU will finance the cash portion of the transaction and will
meet the stock component of the transaction by issuing new
shares. NU expects to redeem a similar amount of shares later
this year by closing out forward share purchase transactions
with proceeds from restructuring. The forward share purchase
transactions were arranged in late 1999 with two financial insti-
tutions. NU is prohibited from purchasing additional shares under
its merger agreement with Con Edison. The merger will return
to NU Connecticut’s largest natural gas distribution system, as
well as several unregulated businesses involved in energy services,
collections and other areas. The Yankee merger received final
DPUC approval in December 1999 and Securities and Exchange
Commission (SEC) approval in January 2000. The merger is
expected to close in early March 2000.
NU’s ability to continue improving financial performance in
2000 will depend largely on continued regulated sales growth
and on successful control of O&M expenses. Additionally,
NU plans to meet the challenges of assimilating Yankee Energy
System, Inc. (Yankee) into its business and achieving, by July
2000, the shareholder and regulatory approvals needed to complete
the merger with Con Edison. NU also hopes to complete in
2000 the majority of restructuring work remaining, primarily
the implementation of the Settlement Agreement in New Hampshire,
the issuance of rate reduction bonds (securitization) to lower stranded
costs at CL&P, WMECO and PSNH, and the auction of NU’s
ownership interests in the Millstone units. Additionally, during
2000, NU intends to continue focusing on the growth of its com-
petitive businesses. NU’s ability to reverse losses in its unregulated
businesses will depend largely on the energy marketing subsidiary’s
ability to better balance its supply options, including soon to be
acquired hydroelectric generation assets, with sales commitments.
MERGERS
In 1998 and 1999, NU management concluded that the pace
of deregulation was accelerating throughout the northeastern
United States and that shareholders would benefit from NU,
not only remaining a major provider of electric transmission
and distribution service, but also becoming an unregulated mar-
keter of both electricity and natural gas. NU management also
concluded that as a result of the changes occurring in the highly
competitive electric utility industry, increased size would be
crucial to achieve its objective of being a leading provider of
energy products and services in the Northeast.
NU management discussed potential business combinations
with several electric utilities in the northeastern United States.
On October 13, 1999, NU announced an agreement to merge
with Con Edison, a financially stronger utility based in New
York. Con Edison will pay approximately $3.8 billion for all of
the outstanding common stock of NU and will assume NU’s debt,
capitalized leases and preferred securities which totaled $3.7
billion at December 31, 1999. Under the merger agreement,
NU shareholders will receive $25 per share, in a combination
of cash and Con Edison common stock. NU shareholders will
have the right to elect cash or stock subject to proration if the
total elections exceed 50 percent in either cash or stock. NU
shareholders who elect to receive stock will receive the number
of shares of Con Edison stock based on the average trading
prices, determined pursuant to a formula, during a fixed period
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