Ameren Corporation, St. Louis, Missouri, U.S., last week announced the signing of a definitive agreement to purchase the stock of Decatur, Illinois-based Illinois Power Company and a 20% interest in Electric Energy, Inc. (EEI) from Dynegy Inc.

In a transaction valued at US$2.3 billion, Ameren will assume approximately $1.8 billion in Illinois Power (IP) debt and preferred stock, and pay the balance in cash at closing. However, Ameren will place $100 million of the cash portion of the purchase price in a six-year escrow unless certain conditions are met prior to closing.

“With Ameren’s and IP’s service territories being contiguous---even intertwined, this acquisition is an excellent strategic fit for our core electric and natural gas delivery businesses,” said Gary L. Rainwater, chairman and chief executive officer of Ameren. “This acquisition will bring solid long-term growth for our company. In addition, it will enhance our ability to continue to deliver low-cost, high-quality service to the nearly two million electric and gas customers we will serve in the state of Illinois after the acquisition is completed.”

Ameren expects this acquisition to be accretive by 5 to 10 cents per share in the first year after the transaction closes. Ameren’s financing plan for this transaction includes the issuance of new Ameren common stock, which in total, is expected to equal at least 50% of the transaction value. Proceeds will be used to pay the cash portion of the acquisition price to Dynegy, reduce certain IP debt and pay related premiums after closing and/or reduce current and future debt at Ameren. Consistent with its acquisition of CILCORP Inc., completed in January of 2003, Ameren could issue some, or all, of the common stock for this acquisition prior to the close of the transaction. Some portion of the common stock could be issued in the near future.

Warner L. Baxter, Ameren executive vice president and chief financial officer, added, “We expect this acquisition to be meaningfully accretive to earnings in the first year after closing and to provide significant long-term value for all our stakeholders. Consistent with our past practice, we will conservatively finance this acquisition in order to immediately strengthen the financial profile of IP and at the same time maintain Ameren’s already strong credit profile and dividend.”

IP’s principal assets are its transmission and distribution systems. IP currently serves approximately 590,000 electric and 415,000 natural gas customers in Illinois. As noted, the purchase also includes Dynegy’s 20% interest in EEI—the owner of a 1086-MW, Joppa, Illinois-based coal-fired power plant--a plant that has some of the lowest operating costs in the United States. Through its subsidiaries, Ameren is already the owner of 60% of EEI.

This transaction also includes a firm capacity power supply contract for the annual purchase by IP of 2800 MW of electricity from Dynegy. That contract extends through 2006 and is expected to supply about 75% of IP electric customer requirements. Because bundled retail electric rates are frozen at current levels in Illinois through 2006, the transaction would not have an immediate impact on retail electric rates paid by customers of IP or other Ameren subsidiaries.

Upon closing of the acquisition, expected by year-end 2004, IP would become an Ameren subsidiary, operating as AmerenIP, and would continue to be headquartered in Decatur, Illinois. Through its operating companies in Illinois, Ameren currently serves more than 970,000 electric and natural gas customers and has approximately 3,200 employees in the state. With this acquisition, more than 60% of Ameren’s total customer base would reside in Illinois. The transaction was approved by the board of directors of each company. The transaction is also subject to the approval of the Illinois Commerce Commission, the Securities and Exchange Commission, the Federal Energy Regulatory Commission, the Federal Communications Commission and the expiration of the waiting period under the Hart-Scott-Rodino Act. No approval is required from shareholders of either company. Ameren will not propose any legislation to complete this acquisition.

Ameren also outlined its commitments to the communities IP serves:

--First, Ameren will immediately contribute a total of $300,000 to the Decatur and other IP service area United Way organizations. This contribution is intended to help ease the current financial difficulty many social service and community-based organizations are experiencing due to recent decreased funding.

In addition, upon closing the transaction, Ameren will commit to the following:

--The headquarters of IP would remain in Decatur for not less than five years.

--IP work force reductions resulting from the acquisition would not exceed 25 employees for a period of four years, except to the extent such additional reductions occur through attrition or voluntary separation programs.

--IP employees and retirees and those retirees’ surviving dependents would remain in their current IP benefit plans or be moved into appropriate Ameren plans, and AmerenIP would honor all existing labor agreements.

--Based on the company’s preliminary analysis, Ameren would commit between $275 million and $325 million in energy infrastructure investments over its first two years of ownership.

--Ameren would increase total contributions to United Way, civic, charitable and social service organizations in IP’s service territory to at least $1.5 million annually.

--Ameren has a strong track record of supporting economic development throughout its service areas. Ameren would commit additional resources to support and enhance economic development aimed at attracting new jobs in the IP service territory.

Rainwater said that these commitments respond to concerns expressed during the Illinois Legislature’s fall veto session, including those voiced by the Hon. Paul Osborne, mayor of Decatur; House Speaker Michael J. Madigan (D-22nd District); Sen. Frank C. Watson (R-51st District); Rep. Eileen Lyons (R-82nd District); State Representative Robert F. Flider (D-101st District); and Sen. Patrick Welch (D-38th District).

“As we listened to community leaders, we grew even more aware of the economic and social impact that Illinois Power has on Decatur and the areas IP serves,” says Rainwater. “Following our recent acquisition of CILCORP Inc. from The AES Corporation, we demonstrated that our company acts responsibly and lives up to its commitments. We take our commitments to the IP service territory just as seriously.”