Conectiv plans to restructure

Facilities, work force, dividend all to be pared


May 12, 1999|By Ted Shelsby | Ted Shelsby,SUN STAFF

Conectiv Inc., the Wilmington, Del.-based utility that serves parts of Harford County and most of Maryland's Eastern Shore, announced plans yesterday for a major restructuring that includes selling some power plants, slashing its dividend and buying back 12 percent of its common stock.

The company said it would also lay off 250 of its 3,700 workers over the next 18 months.

The moves, prompted in part by the recent deregulation of the utility industry, are expected to generate about $1 billion in cash that would be used to expand the company's telecommunications business.

Howard Cosgrove, chairman, chief executive and president of Conectiv, said the restructuring is designed to make the company a "provider of vital services" -- including local and long-distance telephone service, natural gas and electricity -- in the mid-Atlantic area.

The company is also giving consideration to becoming an Internet service provider in the four states it serves. In addition to serving its 175,000 customers in Maryland, Conectiv serves New Jersey, Delaware and Virginia.

Conectiv's oil-fired electric power plant in Vienna, Md., is one of six conventional power plants the company is putting on the market.

It also plans to sell its minority interest in three nuclear power plants, including the Peach Bottom plant in Pennsylvania, just across the border from Cardiff, Md.

The Eastern Shore plant has 27 workers. Jay Mason, a spokesman for Conectiv, said the company also has operation centers in Salisbury, Elkton and Centreville. It has a total of 315 workers in Maryland. Mason said it is too soon to say how many might lose their jobs.

The common stock dividend will be cut to 88 cents a share from the current annual rate of $1.54.

"This is the trend in the utility industry," David Burks, an analyst with J. J. B. Hilliard, W. L. Lyons Inc., said of Conectiv's restructuring plans.

He said companies are cutting or freezing their dividends to free up funds to invest in more growth opportunities.

Burks said Conectiv has been paying a high dividend rate in recent years. He said that, while most utilities are paying out about 70 percent of earnings in divi- dends, Conectiv has been paying between 85 percent and 95 percent.

Mason said the company plans to buy back 14 million shares, or 12 percent of its outstanding common stock, through what he called a "Dutch auction" tender offer.

The tender, which began yesterday, runs until June 8. Mason said the tender price will range between $23.50 and $25.50 a share, and the company will buy the shares offered at the lowest price.

Mason said Conectiv fears that it is not large enough to be competitive in a deregulated electric power supply market. If all the power plant sales are completed, it would reduce the company's electricity generation capacity by more than 60 percent. The reduction would leave the company in niche markets where it feels it can compete.

Mason said that, while the company's financial return from its production of electricity is less than 11 percent, the return on its rapidly growing telecommunication business is between 12 percent and 15 percent.

The Vienna plant, in Dorchester County, was in the news in February when Maryland Gov. Parris N. Glendening and Gov. Thomas R. Carper of Delaware announced that the two states were considering a joint project to convert the plant to burn chicken manure.

Mason said Conectiv is still considering a conversion, but it will depend on whether the plant is sold.

Conectiv shares rose 87.5 cents to $24.1875 yesterday.

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