- The Washington Times - Tuesday, July 30, 2002

Merger plans have analysts uncertain about stocks for Potomac Electric Power Co. (Pepco).

The District-based electricity supplier will finalize its merger with Conectiv, a Wilmington, Del.-based electricity company, on Thursday, thus becoming one of the largest electricity companies in the Mid-Atlantic area.

Pepco, provider for the District and Prince George's and Montgomery counties in Maryland, announced the merger with Conectiv, which serves customers in Delaware, New Jersey, Maryland and Virginia, in February 2001, planning to continue both companies under newly formed Pepco Holdings Inc.

Pepco spokesman Bob Dobkin said the company expects a 6 percent to 8 percent growth in earnings and dividends for the next year with the merger.

"We believe that this merger will be a platform for earnings and dividends growth," he said.

Pepco Holdings will increase its customer base to from 700,000 to 1.8 million despite quarterly earnings reports that attributed losses to customer migration to other energy suppliers, Mr. Dobkin said.

"The migration is in customers getting different suppliers of the energy that we still deliver," Mr. Dobkin said. "Some of that has gone to our unregulated subsidiary Pepco Energy and others have gone to competitors."

Pepco shares closed at $19.22 yesterday, rebounding from a 52-week low of $15.37 last week.

Janney Montgomery Scott analyst David Schanzer said his company, like Argus Research and Leggs Mason Wood Walker, has advised investors to hold their stock in Pepco.

"Part of the reason for the hold is that Potomac investors with significant yields should get the outcome of how this merger will work before acting," Mr. Schanzer said.

Other than "murmuring that the new company will be stronger and better," Mr. Schanzer said analysts are skeptical about how well the Pepco Holdings will perform.

"We haven't heard how the merger will quantitatively benefit investors."

The company, in a second-quarter report ended June 30, showed earnings falling 5 percent to $45.7 million (43 cents per share) from $48.2 million (45 cents) a year earlier.

The six month earnings in 2001 included a one-time, after-tax gain of $22.4 million primarily from the sale of Pepco's interest in a Pennsylvania generating plant.

Mr. Dobkin said it's too soon for Pepco to quantify investor earnings, noting Pepco just received approval from the Securities and Exchange Commission last week for the merger.

"There has been some economic scaling of the company but it's too soon to tell as far as investor profits."

Mr. Schanzer said investors are likely to wait for Pepco Holdings to begin operating before making any moves to buy or sell.

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