Allegheny Power System Inc. will merge with DQE Inc., parent company of Duquesne Light Co., to form Allegheny Energy, which will save both companies about $1 billion over the next 10 years.
The new company will have a total market capitalization of $10.6 billion: $6.2 billion in equity and $4.4 billion in net debt and preferred stock.
"Allegheny Power is a winter-peaking operation: Its low-cost, efficient operations and suburban and rural customer mix fit well with our summer-peaking operation and urban customer base," said David Marshall, President and CEO of DQE.
Marshall will become the new company's president and chief operating officer, while Alan J. Noia, currently CEO of Allegheny Power, will become the chair and CEO.
Cost Savings. The $1 billion in merger-related savings will come from elimination of overlapping activities, improved operating efficiency and lower capital costs. The company plans to eliminate about 500 positions through reduced hiring, attrition and early retirements.
DQE stockholders will receive 1.12 shares of Allegheny Power common stock for each DQE share. Allegheny Power will issue about 86.5 million shares valued at $2.6 billion to DQE shareholders based on the April 4 closing price of $29.75 per Allegheny share. DQE shareholders will receive the Allegheny Power dividend in effect at the merger.
Credit Ratings. Moody's Investors Service has placed the credit ratings of Allegheny and its operating companies under review for possible downgrade, and the ratings of Duquesne under review for potential upgrade. Moody's pointed out that Duquesne will become a wholly owned subsidiary of Allegheny Energy, functioning as a sister company to West Penn Power, Monongahela Power, and Potomac Edison. Both West Penn and Duquesne are scheduled to file restructuring proposals with the Pennsylvania Public Utilities Commission this summer that will include merger details.
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