BGE pays premium to foes of merger 3 balking insurers getting $62.1 million for preferred shares

March 29, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Three insurance companies that own preferred shares nearly derailed Baltimore Gas and Electric Co.'s merger plans -- a potential roadblock that prompted the utility to take action this week to redeem the stock for $62.1 million.

The negative votes by the General Accident Insurance Co., American States Insurance Co. and Protection Mutual Insurance Co. meant that the $8.3 billion utility company would have been unable to collect the two-thirds majority required in the preferred stock class to unite with Potomac Electric Power Co.

The three insurers collectively controlled 33 percent of BGE's outstanding preferred shares.

By spending the $62.1 million to redeem the stock, BGE is expected to have little difficulty garnering support today when preference and common shareholders vote at the special shareholders meeting being held to approve the marriage.

"We could not be certain that we would obtain approval of the merger from that class of preferred stockholders, and, from our perspective, we didn't want a small handful of shareholders to dictate what we obviously believe will be something good for the company," said Thomas E. Ruszin Jr., BGE's treasurer and assistant secretary.

Mr. Ruszin declined to confirm the names of the preferred shareholders that voted against the merger in proxy statements. Their names were obtained from public filings.

The insurers, the largest owners of BGE's 300,000 shares of Series D preferred stock, will receive $101 per share when the redemption is final. It could not be determined last night why the companies voted against the merger.

Holders of two other BGE preferred stock classes, a Series B and Series C, will receive $110 per share and $105 per share, respectively.

The redemption prices are far above what had been bid on the open market earlier this week. For instance, the Series B shares traded at $66 per share, the Series C shares sold for $55 per share, and the Series D shares were bid at $77 per share.

The shares, which will be redeemed May 28, had a total value of $41.6 million prior to BGE's announcement that it would redeem the shares, meaning that BGE will pay roughly $20 million over their current trading price to neutralize the shares.

However, the shares carried a $59.2 million par value, only $3 million less than the amount BGE will have to pay to redeem them.

But BGE will pay for the control of its destiny and the anticipated ability to receive shareholder blessing. As a result of the redemption, Constellation Energy Corp. -- the entity BGE and Pepco plan to form by March 1997 -- will spend nearly $1 million annually, in perpetuity, in financing costs to cover the preferred share redemption, said Arthur J. Slusark, a BGE spokesman.

On a per-share basis, the cost will reduce the utility's earnings by less than one-half of 1 cent per year, Mr. Slusark said.

Pub Date: 3/29/96

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