FirstEnergy and Allegheny Energy, Inc. have announced that both companies’ boards of directors have unanimously approved a definitive agreement in which the companies would combine in a stock-for-stock transaction.

Under the terms of the agreement, Allegheny shareholders would receive 0.667 shares of FirstEnergy common stock in exchange for each share of Allegheny they own. Based on the closing stock prices for both companies on Feb. 10, 2010, Allegheny shareholders would receive a value of $27.65 per share, or $4.7 billion in the aggregate. FirstEnergy will also assume approximately $3.8 billion in Allegheny net debt. The price per share represents a premium of 31.6 percent to the closing stock price of Allegheny on Feb. 10, 2010, and a 22.3 percent premium to the average stock price of Allegheny over the last 60 days ending Feb. 10, 2010. Following the completion of the merger, it is anticipated that FirstEnergy shareholders would own approximately 73 percent and Allegheny shareholders would own approximately 27 percent of the combined company.

The transaction is anticipated to be accretive to FirstEnergy earnings in the first year following the close. The companies expect to complete the transaction within 12-14 months.

The combination creates a regional energy provider with:

• Approximately $16 billion in annual revenues and $1.4 billion in annual net income (combined figures as of Dec. 31, 2009);
• Ten regulated electric distribution companies providing electric service to more than six million customers in Pennsylvania, Ohio, Maryland, New Jersey, New York, Virginia and West Virginia;
• Nearly 20,000 miles of high-voltage transmission lines connecting the Midwest and Mid-Atlantic;
• Approximately 24,000 megawatts (MW) of generating capacity from a diversified mix of regional coal, nuclear, natural gas, oil and renewable power; and
• More than 2,200 MW of renewable energy, including hydroelectric, contracted wind and pumped-storage capacity.

“The combination of our companies is a natural fit that will accelerate our efforts to strengthen the operating performance of our generating fleet while building on our long-standing dedication to customers, shareholders and employees,” said Anthony J. Alexander, president and chief executive officer of FirstEnergy. “This transaction will provide outstanding value to both companies’ shareholders – offering enhanced earnings growth potential and a more competitive cost structure. Among other benefits, it would increase generation resources by 70 percent, more than double the amount of supercritical coal capacity, improve the overall environmental performance of the generation fleet, and increase our customer base by 35 percent. We also expect to create significant efficiencies and economies of scale as we share best practices across the new organization.

“This combination supports our strategy of being a leading regional energy provider, focused on both regulated utility operations and our competitive generation business,” Mr. Alexander said. “Simply put, it provides a far better platform for growth than either company would have been capable of achieving on a stand-alone basis.”

Paul J. Evanson, chairman, president and chief executive officer of Allegheny, said, “This transaction significantly enhances value for our shareholders, who will receive both a meaningful premium and a substantial increase in the dividend based on FirstEnergy’s current practice. The combined company will have substantial upside potential with increased scale and a more diverse generation fleet. We plan on working closely with FirstEnergy to integrate the businesses while maintaining both companies’ long-standing focus on reliability, customer service, quality and safety.”