Annual Annual EPS
Close Close Percent 52-Wk 52-Wk Div Div Book P/E Last
Company Region 06/28/96 09/30/96 Change High Low Rate Yield Value Ratio 12 Mos.Electric Utilities...
Any executive who has gone through a merger, however well planned and executed, knows that it is a challenging process. Two essential ingredients are required before merger discussions can proceed from the initial "what if" stage to agreement on all critical and strategic issues. These ingredients must be developed by the chief executive officers through face-to-face meetings and a combination of intuitive response as well as specific examination of strategic issues. The two ingredients are early agreement on and understanding of the underlying principles that will guide merger discussions, and the development of a level of trust that permits full discussion of all important issues.
The merger discussions between myself and Stan Bright moved rather quickly through the development of trust and an agreement on the principles that would allow us to achieve a merger of equals. In general terms, the principles that guided our discussion included the concept of a strategic alliance through a merger of equals, a plan for corporate governance, a plan for management succession and transition, and a commitment to maintaining a corporate presence in our key communities.
The merger discussions that followed the development of principles were not always easy, but we moved forward knowing that we could compromise on nonstrategic issues without requiring compromise by either party on the principle issues. We were guided by a common goal: to create a new company that would be stronger than either of the predecessor companies and have greater potential to prosper in the coming competitive utility business.
Synergies Too Good to Resist
It was clear from the beginning of our discussions (em indeed, it was part of what prompted them (em that there were enormous potential synergies to be gained by merging our two companies. We had contiguous gas and electric distribution service areas; joint ownership interests in four low-cost, and environmentally clean coal-fired power plants with common transmission assets. We could eliminate duplicate functions, defer capacity additions, and reduce fuel and natural gas costs through greater purchasing power. We could, in fact, save the combined company as much as $500 million over 10 years.
Moreover, these potential synergies underpinned a strong, five-part "stakeholder" case for the merger:
s It would create a larger, financially stronger company, one better positioned to attract the capital investment for future growth.
s It would provide opportunity for added shareholder value through increased efficiency and reduced or avoided costs.
s Customers would benefit from the merger-related synergies and attendant cost reductions that, over time, would help keep future rates low.
s The new company would have a more diverse base of industrial, commercial, agricultural, and residential customers.
s The new company would be better positioned to take advantage of future strategic opportunities in nonregulated ventures.
Management: Structure and Succession
A new board of directors and an order of management succession were needed to transform our concept of a strategic alliance into a workable reality.
About half of our projected $500 million in merger savings would be achieved by eliminating duplication in the combined employment levels of both companies, so we applied that