BGE and Pepco shareholders vote for merger Management must field some objections and queries, however

The $62 million question

'If you are small, you will not survive,' one chairman declares

March 30, 1996|By Kevin L. McQuaid and Alec Matthew Klein | Kevin L. McQuaid and Alec Matthew Klein,SUN STAFF

Baltimore Gas and Electric Co. and Potomac Electric Power Co. shareholders yesterday approved the pending merger of the two utilities, but not before hitting management with questions and objections.

The questions covered topics ranging from why BGE is determined to remain union-free to why it decided to redeem $62.1 million in preferred stock. The fairness of a stock-trading ratio that gives Pepco holders a premium, as well as issues such as how minorities would be treated in the future and how many charitable organizations would be supported were also discussed.

Some shareholders also objected to the name Constellation Energy Corp., the entity the utilities plan to create by March 1997; the company's decision to relocate its headquarters to the Annapolis area; and the planned elimination of 1,350 positions, or 10 percent of its combined work force, to achieve $1.3 billion in savings by 2007.

"I think it's unconscionable that the company has to lose 10 percent of its employees to move forward," one stockholder protested at the BGE meeting.

Christian H. Poindexter, BGE's chairman and chief executive, said the cuts are necessary because duplication will occur by combining the two utilities through its $2.9 billion merger, and to remain competitive in an industry undergoing vast changes.

"The movement that's now taking place in my opinion boils down to this: If you are small, you will not survive," echoed Pepco Chairman and Chief Executive Edward F. Mitchell, during Pepco's special shareholder meeting.

Mr. Poindexter added that between a hiring freeze instituted last September and attrition, Constellation hopes to shave a minimal number of people. Furthermore, BGE and Pepco have allocated $50 million in severance for employees terminated because of the union.

Of the 110 million shares of BGE common stock that voted yesterday, 97 percent approved the merger with Pepco, which will create the nation's ninth-largest power concern with $15.4 billion in assets. Of the 89.5 million Pepco outstanding common shares that voted, more than 95 percent blessed the union.

Mr. Poindexter also was asked to defend BGE's decision to redeem its preferred stock earlier this week, a move prompted by three insurance companies and preferred holders that nearly hTC derailed the Pepco merger by voting against it.

The redemption, at $20 million over the current trading price of the preferred shares, will cost the company nearly $1 million in financing every year.

"The insurance companies knew they could force our hand," Mr. Poindexter said. He added the three insurers objected because the merger held little benefit for them.

In addition to the shareholder vote and the maelstrom over the preferred shares, BGE dodged another potential merger roadblock earlier this week when Baltimore County Circuit Court Judge J. Norris Byrnes dismissed a shareholder lawsuit objecting to the union for failing to "state a claim."

Attorneys for the shareholder, now have 45 days to amend the complaint, but they are currently uncertain as to how they'll proceed, said Margaret L. Argent, a Thomas & Libowitz attorney representing Janice Wittman.

In Washington, Pepco stock owners drilled Mr. Mitchell over Constellation's leadership. Mr. Mitchell will be Constellation's chairman, while Mr. Poindexter will be the new company's chief executive.

Chief among the critics was shareholder Evelyn Y. Davis, who waved a flashlight during a question-and-answer session with company officials.

"You see the flashlight?" Ms. Davis asked. "We will need that when we become a subsidiary of Poindexter and company."

As with past BGE shareholder sessions, picketers braved rain and cold to protest. Yesterday, it was the International Brotherhood of Electrical Workers' turn. Supporters of the union, which is attempting to organize BGE workers, passed out fliers and carried signs outside BGE's 21-story headquarters at 39 W. Lexington St.

The IBEW claimed yesterday BGE will ultimately spend as much as $30 million to block the organizing effort.

Pub Date: 3/30/96

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