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Interstate Energy Corp.: A Three-way Tie

Fortnightly Magazine - January 15 1996

In the first three-way merger in utility history, IES Industries Inc., Interstate Power Co., and WPL Holdings, Inc. propose to combine as Interstate Energy Corp. The companies project merger savings of about $700 million over a 10-year period. If approved by regulators and shareholders, the proposal would result in a corporation with market capitalization of about $2 billion, and assets of almost $4 billion. Interstate would rank 34th among U.S. utility holding companies, based on 1994 revenues.

Holders of IES Industries common stock would receive 0.98 shares of WPL Holdings, Inc. common stock for each share. Holders of Interstate Power Co. common stock would receive 1.11 shares of WPL Holdings common stock for each share. Holders of WPL Holdings, Inc. common stock would retain the number of shares held on the merger date. At that time, the dividend will be matched to that paid by WPL Holdings; subsequent dividend policy will be developed by the board of the new company.

In response, Moody's Investors Service has placed the credit ratings of Wisconsin Power & Light Co. (WPL) and Interstate Power Co. under review for possible downgrade. The ratings of IES Utilities Co. will be reviewed for possible upgrade. Review will focus on potential merger savings, and the allocation of the savings among the companies and their ratepayers. Moody's believes savings might be reduced by the limited transmission access between Wisconsin, where WPL is located, and Iowa, where IP and IES are located. Although IP and IES are connected, there is no direct transmission connection between either Iowa company and WPL. Moody's added that a significant portion of savings is expected from staff reductions of between 10 and 15 percent.


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