FP&L's parent to merge with Louisiana utility

FPL Group and Entergy Corp. will create the nation's largest power company in a $7-billion stock deal as utility mergers march on.

By STEVE HUETTEL

© St. Petersburg Times, published August 1, 2000

In the second megamerger to hit Florida utilities in a year, FPL Group agreed Monday to join with Entergy Corp. in a $7-billion stock deal that will create the nation's largest power company with more than 6.3-million customers.

The combined company, with retail power customers in five Southern states, would far surpass Columbus, Ohio-based American Electric Power Co. and its 4.8-million customers. And it would be the largest U.S. power producer with plants capable of generating more than 48,000 megawatts.

The proposed merger follows a spate of recent utility combinations, including Carolina Power & Light's pending $5.3-billion buyout of St. Petersburg-based Florida Progress Corp., Florida's No. 2 energy company and parent to Florida Power Corp. That sale is expected to be completed this fall.

FPL chief executive James L. Broadhead said in a conference call that the industry is rapidly consolidating, a trend that will leave only a few huge power producers.

"This merger will give us the size, scale and scope to assure we'll be one of those companies," he said.

FPL, based in Juno Beach, already is the biggest power company in the state. Its Florida Power & Light Co. subsidiary has more than 3.8-million customers in an area that includes Florida's west coast from Manatee County south, all of South Florida and most of the state's east coast. New Orleans-based Entergy serves most of Louisiana and Arkansas, east Texas and western Mississippi.

The companies called the deal a merger of equals, but there are some distinctions. Broadhead will become chairman of the new company, which will be headquartered in Juno Beach. Entergy chief executive J. Wayne Leonard will be president and chief executive of the combined company. The company's 15-member board will consist of eight members from FPL Group and seven from Entergy.

With both FPL and Florida Progress involved in deals, what of Tampa's TECO Energy?

If both deals are approved by regulators, TECO, the state's third-largest investor-owned power company, would be sandwiched between two regional power giants. Analysts and industry observers say the latest deal puts additional pressure on the parent of Tampa Electric Co. to buy -- or more likely be bought by -- a larger power company.

"You've got to believe they'd be a good takeover candidate," said Jeff Pollock, a principal in BAI, a St. Louis company that advises large industrial electric consumers. "If Tampa Electric wants to survive, it has to acquire or be acquired by somebody."

A TECO spokesman said the company doesn't share that opinion. TECO chairman Bob Fagan said in a statement that an FPL merger had been expected. "This proposed merger will not affect our relationship with our customers across Florida, nor the way we do business," he said.

A Carolina Power & Light spokesman also said Monday's announced merger would not affect the company's plans. "It certainly confirms our belief the Florida market is a great market to be in. It doesn't change CP&L's strategy," said spokesman Keith Poston in Raleigh, N.C.

Iberdrola SA, Spain's second-largest power company, tried to buy FPL this year at a premium: about $60 a share. But talks ended in April after Spanish shareholders objected.

In the FPL-Entergy deal, the stock swap would give FPL investors one share in the new company for each FPL share. Owners of Entergy shares would receive 0.585 shares of the new firm.

"Entergy is financially weaker than FPL," said Steven Lehman, manager of the Federated Utility Fund, which owns about 350,000 shares of FPL. "I thought FPL would be sold to another company at a premium. It's a disappointment to get no premium."

The markets panned the proposed merger Monday. FPL shares dropped $4.56 to $48.25. Entergy stock fell $3.19 to $27.13.

Company officials and analysts worried that the stock price would stagnate during the time it will take for stockholders and regulators to approve the merger, at least 15 months.

"While you go through the year or year-and-a-half the deal is getting regulatory approval, the stock is dead in the water," said Tom Hanlin, an analyst with First Union Securities.

But Hanlin and other observers like the long-term prospects for the combined company.

Entergy owns six nuclear units with deals in the works to buy two more, while FPL operates four nuclear units. Once merged, the company will be the country's second-largest nuclear generator.

Broadhead said he expected the new company to add revenue at a rate of 10 percent annually, a better performance than either company could achieve separately.

The companies expect to save between $150-million and $275-million by eliminating duplicate administrative and corporate jobs, combining processes such as billing, and getting cost savings in procurement.

Power companies across the country are bracing for deregulation, under which customers will be able to choose between competing suppliers and rates. Both FPL and Entergy have been emphasizing unregulated wholesale power generation and sales.

"When all is said and done, there will be only a relatively small number of power companies remaining," Broadhead said. "The two companies are a good match."

- Information from Times wires was used in this report.

© St. Petersburg Times. All rights reserved.