MERCER COUNTY

FirstEnergy, GPU merger would create 6th largest electric company

FirstEnergy Corp. and GPU Inc. said this morning they reached a deal to merge the two companies. The move would create the nation’s sixth largest electric company based on customers.

Under the definitive agreement, FirstEnergy would buy all of GPU’s outstanding shares for about $4.5 billion in cash and FirstEnergy common stock. FirstEnergy also would assume about $7.4 billion of GPU’s debt and preferred stock.

Boards of both companies have agreed to the deal, which is expected to be completed in a year.

GPU, based in Morristown, N.J., has been talked about as a buyout candidate for some time. The company aggressively expanded in overseas markets but hasn’t seen much of a return on its investments.

FirstEnergy is headquartered in Akron and was formed in the 1997 merger of Ohio Edison Co. and Centerior Inc. FirstEnergy owns Ohio Edison, Toledo Edison, the Illuminating Co. and Pennsylvania Power Co. Penn Power is based in New Castle and serves 145,000 customers in all of Mercer and Lawrence counties and sections of Allegheny, Beaver, Butler and Crawford counties.

Together, the two companies serve 4.3 million customers in Ohio, Pennsylvania and New Jersey.

The combined company would be valued at $8.5 billion, based on Friday’s FirstEnergy stock price of $26.94 a share. The deal would be accounted for as a purchase, and is expected to be accretive to FirstEnergy’s earnings per share and cash flow immediately upon completion of the sale.

Terms call for GPU shareholders getting the equivalent of $36.50 for each share of common stock, payable in cash or in FirstEnergy common stock, so long as FirstEnergy’s common stock price is between $24.24 and $29.63.

Each GPU shareholder would be able to elect the form of consideration they wish to receive, subject to proration so that the aggregate consideration to all GPU shareholders will be 50 percent cash and 50 percent FirstEnergy common stock. Each GPU share converted into FirstEnergy common stock would receive not less that 1.2318 and not more than 1.5055 shares of FirstEnergy common stock. The amount would depend on the average closing price of FirsEnergy stock during the 20-day trading period ending on the sixth trading day prior to the merger closing.

Matt Lazaroff, vice president and Sharon branch manager of Raymond James Securities Inc. said the deal looked like a good one for both companies.

"I think you’re going to see more consolidations like this in the electrical area,’’ Lazaroff said.

But what’s good for shareholders isn’t necessarily beneficial to consumers, he noted.

"Are deals like this better for consumers? No,’’ Lazaroff said. "When you have less competition prices tend to rise.’’

The deal is subject to regulatory approval.