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FPL, Entergy to merge
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July 31, 2000: 4:17 p.m. ET
Electric utilities to create largest U.S. power generator in $7B stock swap
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NEW YORK (CNNfn) - FPL Group Inc., the parent of Florida Power & Light Co., and Entergy Corp. announced Monday plans to merge in a $7 billion stock swap that would create the largest power producer in the United States.
The new company will serve about 6.3 million customers and have 48,000 megawatts of power capacity. It also will generate more than 10,000 megawatts in nuclear power.
The deal also includes $10.7 billion in debt and preferred stock. An Entergy spokesman said the figure consists substantially of debt, upwards of $10 billion, with less than $1 billion of preferred stock.
Juno Beach, Fla.-based FPL (FPL: Research, Estimates) and New Orleans-based Entergy (ETR: Research, Estimates) are calling the deal a merger of equals. FPL shareholders will get one share in the new company for each of their existing FPL shares, while Entergy shareholders will get 0.585 share of the new company for each of their existing shares.
Shares of FPL fell 5-1/16 to 47-3/8 on the New York Stock Exchange Monday while Entergy dropped 3-3/16 to 27-27-1/8.
But Entergy CEO Wayne Leonard, who will be the new company's president and CEO, told CNNfn such a market reaction in typical to complex deals and when the market starts to understand the merger the stock will turn around.
"Basically, longer term this is a good deal," said Andrew Levi, an analyst with Credit Suisse First Boston. "There will be short-term pressure on both stocks as [the deal] goes through the regulatory process."
"It will take some time for the merger to be completed," Levi said.
PaineWebber utility analyst Barry Abrahamson agreed that there will be long-term benefits, but was not happy with the valuation of FPL and PaineWebber downgraded the stock from a "buy" to a "neutral."
 "What the market sees is that FPL is doing very well on its own," Abrahamson told CNNfn's In the Money. "It was growing fast, it was expanding its telecom business, its independent power business had started to take off and it could have gotten a much bigger multiple just as a stand-alone company."
"We thought the company could be worth over $60 [per share]," Abrahamson said.
He added that this merger could mean the utility will see more deals.
"What this deal does is it raises the bar," he said. "Every other company in the energy business is relatively much smaller and needs to consider a merger to get bigger themselves."
Leonard agreed with the assessment that other companies will be trying to play catch-up. (321K WAV or 321K AIFF)
The new company will have a market capitalization of about $16.4 billion, the companies said. They expect the deal to be done in 15 months.
FPL Chairman James Broadhead will be chairman of the new company. The new company's board of directors will be comprised of eight FPL members and seven from Entergy.
"We expect to deliver average annual earnings-per-share growth of 10 percent or more over the next several years, fueled by a combination of revenue enhancement opportunities and cost saving," Broadhead said. "Our strong balance sheet and increased cash flows will enable our new company to more aggressively pursue profitable growth opportunities."
The companies expect the merger to add to earnings immediately.
Paul Freemont, analyst with Jeffries and Co., said the projected earnings growth is close to his company's estimation for the individual companies. (282K WAV or 282K AIFF)
 Freemont said both companies will continue to pursue their policies of cutting costs and eliminating non-earning segments.
Leonard said the companies expect cost savings of $275 million per year. (341K WAV or 341K AIFF)
Both companies said they will seek to minimize layoffs through "a variety of efforts," and that all union contracts will be honored.
There is a breakup fee of $250 million plus $50 million for expenses if the deal is terminated by either party. Merrill Lynch advised FPL and Morgan Stanley Dean Witter and J.P. Morgan advised Entergy.
FPL Group has annual revenue of more than $6 billion and employs 11,350 people. Through Florida Power & Light, it serves about 3.8 million customers.
Entergy has revenue of about $9 billion with 12,200 employees and 2.5 million customers.
In April, an $11 billion purchase of FPL by the Spanish firm Iberdrola was reportedly scuttled by opposition on the Iberdrola board. 
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