CP&L Buys Florida Progress for $17 Billion

Creating the ninth-largest energy utility in the U.S. with a generating capacity of more than 18,500 megawatts, Carolina Power & Light Company (CP&L) will merge with Florida Progress. The two companies announced that their boards of directors have unanimously approved a definitive agreement to combine the two companies. The combined company will have total revenues of $6.7 billion (based on 1998) and 2.5 million electricity customers in a 50,000-square-mile retail service area. The company will have a powerful presence in the Southeastern electric and natural gas markets, and will be dedicated to expanding the region's electric generation capacity and delivering reliable, competitively priced energy throughout its high-growth service area.

The combined company will also have a total enterprise value of approximately $17 billion with $8 billion in equity and $9.1 billion in net debt and preferred stock. According to the terms of the agreement, Florida Progress shareholders will receive $54.00 per Florida Progress common share in a combination of cash and a new CP&L holding company's common stock. The total value of the transaction is approximately $5.3 billion.

CP&L expects the combined company to have annual growth in earnings per share of 7 to 8%. Florida Progress shareholders will have the right to elect cash or stock subject to proration if the elections exceed 65% in cash or 35% in stock. The stock component of the consideration is subject to a collar if the average price of the new CP&L holding company's stock for the 20-day period ending five days prior to closing is greater than $45.39 or less than $37.13. Both the cash and stock components will be taxable to Florida Progress shareholders.

According to CP&L Chairman, President and CEO William Cavanaughsaid, "The acquisition of Florida Progress represents a major step toward fulfilling our strategic plan of becoming a leading energy provider in
the Southeast. Like the Carolinas, Florida is one of the highest-growth areas in the country. The predominantly residential base of Florida Power (Florida Progress' primary subsidiary) is an excellent complement to our mix of more commercial and industrial customers. The complementary growth in both CP&L and Florida Power territories and the wholesale market in the Southeast will enhance our plans to add more gas-fired generating capacity and will increase our siting options as well as the markets for our product. With our recent acquisition of North Carolina Natural Gas Corp., this combination with Florida Progress will enhance our competitive position in the generation, power marketing and delivery of energy services in the best area of the country to be in the energy business."

William Cavanaugh will be chairman, president and chief executive officer of the combined company. Richard Korpan will retire as chairman, president and chief executive officer of Florida Progress at the close of the transaction and join CP&L's board of directors. The board will have 14 members, 10 of whom will be designated by CP&L and four of whom will be designated by Florida Progress. The combined company will be headquartered in Raleigh with Florida Power headquarters in St. Petersburg.

The combined company's non-utility businesses represent a strong platform to supplement utility earnings growth. CP&L's non-utility subsidiaries primarily include Interpath Communications, Inc., a network-based applications service provider that operates a 2,000 fiber optic route mile network and Strategic Resource Solutions Corp. (SRS) a technology-based energy services company. Florida Progress' primary non-utility subsidiary is Electric Fuels Corporation (EFC), which consists of three business segments: coal mining and coal procurement, marine transportation and rail services. In addition, Florida Progress owns a 1,100 fiber optic route mile network through its Progress Telecommunications subsidiary. Non-utility revenues will represent approximately 15% of the revenues of the combined company.

This action is the latest and most significant development in CP&L's nascent regional energy strategy. This
summer, CP&L added 325 MW of electric generation. The acquisition was part of a planned 7,000 MW of generation additions over the next decade to meet growing retail needs and increase sales in the competitive wholesale market. Also thsi summer, CP&L acquired North Carolina Natural Gas Corp. and is developing natural gas pipeline expansion plans to fuel CP&L's planned power plants.

After the integration is completed, it is anticipated that the company will have a combined workforce of approximately 16,000 employees, reflecting a reduction of about 7%. The company will use a combination of attrition and moderation in hiring to reduce the need for employee separations. All union contracts will be honored.

CP&L expects the new holding company to continue CP&L's current dividend policy which has resulted in dividend increases for 16 of the last 17 years. CP&L currently pays an annual dividend of $2.00 per share. It is anticipated that Florida Progress shareholders who elect stock will receive the CP&L dividend in effect at the time of the close of the transaction.

The transaction is conditioned, among other things, upon the approvals of shareholders of both companies, Federal Energy Regulatory Commission, the Securities and Exchange Commission (SEC), Nuclear Regulatory Commission and the completion of state regulatory procedures. While there is no formal state approval for this transaction in Florida, the companies will continue their practice of constructively working with state regulators regarding their ongoing jurisdiction over Florida Power.

Edited by Stephen Heiser