Entergy Corporation · NYSE:ETR
Entergy — Merger or Acquisition (December 2011)
37 slides from Entergy's merger presentation, Dec 5, 2011
Slide 1: Filed by Entergy Corporation Pursuant to Rule 425
Filed by Entergy Corporation Pursuant to Rule 425 Under the Securities Act of 1933 Subject Company: Entergy Corporation Commission File No. 001-11299
Slide 2: Entergy, New York, December 5, 2011
2 in tergy, New York, NY December 5, 2011
Slide 3: Caution Regarding Forward-Looking Statements and Reg G Compliance
Caution Regarding Forward-Looking Statements and Reg G Compliance In this presentation, and from time to time, Entergy makes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Except to the extent required by the federal securities laws,
Slide 4: Additional Information and Where to Find It
Additional Information and Where to Find It ITC and Transco will file registration statements with the Securities and Exchange Commission (“SEC”) registering shares of ITC common stock and Transco common units to be issued to Entergy shareholders in connection with the proposed transactions. ITC wil
Slide 5: 3
3
Slide 6: Announcement of Transmission Business Divestiture and Merger with ITC
Announcement of Transmission Business Divestiture and Merger with ITC Transaction Overview Transaction • Prior to the merger, Entergy will pursue a tax-free spin-off Structure of its transmission business to Entergy shareholders and ITC expects to effectuate a $700M recapitalization currently antici
Slide 7: Entergy Customers and Other Stakeholders to Benefit From Independent Transco
Entergy Customers and Other Stakeholders to Benefit From Independent Transco Increases flexibility of Entergy’s investment alternatives Financial Protects credit quality of Entergy and its OpCos Flexibility Supports efficient infrastructure investment and Growth Improves access to capital for Enterg
Slide 8: Today's Announcement Builds on Key Strategic Objectives
Today’s Announcement Builds on Key Strategic Objectives Why a Transco? Complete independence (divestiture) Singular focus in one critical area – Substantial investment – Technological change Protects / improves credit quality of Operating Companies – Investment needs > depreciation level Consistent
Slide 9: Why This Transaction? Consistent with Congress and FERC Direction
Why This Transaction? Consistent with Congress and FERC Direction Energy Policy Act FERC Presumption of 2005 on Independence Not later than 1 year after the date of "This order benefits customers because the transfer of transmission facilities to an enactment of this section, the independent entity
Slide 10: Why This Transaction? Rising Capital Spending in the Industry
Why This Transaction? Rising Capital Spending in the Industry . . . Projected Industry Capital Investments Growth / Investment Over Next 20 Years $T ??? Other = 0.15 Distribution Transmission Generation Current Market Cap Projected Source: Internal analysis; Bloomberg --As presented 11/8/2011 8
Slide 11: Why This Transaction? Rising Capital for Entergy too
Why This Transaction? . . . and Rising Capital for Entergy too Entergy Projected Transmission Capital Investment 2011E – 2014E; $M 600 500 400 300 200 Projected Depreciation 100 Expense 0 11E 12E 13E 14E 9
Slide 12: Why This Transaction? Addresses Inefficient Transmission Framework
Why This Transaction? Addresses Inefficient Transmission Framework U.S. Electric Power Transmission Grid Transmission infrastructure development in the U.S. historically has been focused primarily on connecting kV load and resources 115 138 within control areas, 161 230 with little interregional or
Slide 13: Concerns about a Transco? Jurisdictional Change
Concerns about a Transco? Jurisdictional Change Jurisdictional Overview – Transmission Regulation Today In MISO Transco Siting ¹ Expansion Plan ² T-Component of Retail Rates ¹ Retail Cost Allocation Wholesale Transmission Rates Allocation Among OpCos / T-Customers 1 Subject to applicable federal law
Slide 14: Concerns about a Transco? Jurisdictional Considerations
Concerns about a Transco? Jurisdictional Considerations Typical Entergy Residential Illustrative Customer Monthly Bill Total Transmission Transmission ROE Fuel Base Rates and Riders (Non-Transmission) 12
Slide 15: Concerns about a Transco? FERC vs State ROEs
Concerns about a Transco? FERC vs State ROEs FERC • Rate regulation (projected test years, with true-up adjustments) is consistent with congressional intent to incent investment • But authorized returns are established within . . . the “zone of reasonableness” States • ROEs must maintain credit, att
Slide 16: Why This Transaction? Meets Stakeholder Objectives
Why This Transaction? Meets Stakeholder Objectives Transco Evaluation Criteria Illustrative Retail Criteria FERC IPPs Customers / Investors Regulators Complete Independence Focus — Credit — Change in Control — — ? — Value — — ? Operational Excellence Meets objectives Does not meet objectives 14
Slide 17: Why This Transaction? Spin-Merge Best Meets Objectives
Why This Transaction? Spin-Merge Best Meets Objectives Financial Structure Illustrative Criteria Sale of Sale of REIT / Minority Majority / Joint Spin-off / MLP Interest 100% Venture Split-off Structure Forward ability to source capital Financial impact on Entergy Tax efficiency More Positive Less P
Slide 18: The Transaction – End State
The Transaction – End State Entergy Shareholders • Entergy Utility Operating Companies comprised of: – Generation Parent – Distribution Creditors Entergy • Entergy to repay $1.7B debt at the Operating Companies and $0.075B at the parent* Entergy OpCo Utility Wholesale Creditors OpCos Commodities * P
Slide 19: The Transaction – Structure
The Transaction – Structure 1 Illustrative 1 Illustrative / simplified depiction of transaction; not all steps shown. Entergy’s non-utility business also not shown. * Not shown 17
Slide 20: The Transaction – Step 1: Entergy Borrows ~$0.575B
The Transaction – Step 1: Entergy Borrows ~$0.575B 1 Illustrative Description – Step 1 Entergy Shareholders Entergy borrows ~$0.575B 1 from capital markets New Bond Holders Entergy Balance Sheet Effects: $B Entergy Consolidated Assets Liab/Equity Cash 0.6 LT Debt 0.6 Illustrative; figures are rounde
Slide 21: The Transaction – Step 2: Entergy Contributes $0.5B to OpCos
The Transaction – Step 2: Entergy Contributes $0.5B to OpCos 1 Illustrative Description – Step 2 Entergy Shareholders Entergy contributes ~$0.5B of loan proceeds to Utility OpCos and retains remaining ~$0.075B to pay down parent debt Entergy Balance Sheet Effects: $B Entergy Consolidated 2 Assets Li
Slide 22: The Transaction – Step 3: Entergy Creates T-Subs, Debt Borrowed
The Transaction – Step 3: Entergy Creates T-Subs, Debt Borrowed 1 Illustrative Description – Step 3 Entergy Shareholders ‘New’ Entergy Transco Subs borrow ~$1.2B from New capital markets Holdco stock New Bond Holders Transco Entergy Subs stock Balance Sheet Effects: $B Entergy Consolidated New Holdc
Slide 23: The Transaction – Step 4: Transco Subs Receive Assets
The Transaction – Step 4: Transco Subs Receive Assets Illustrative¹ Description – Step 4 Entergy Utility OpCos contribute Shareholders transmission assets to newly created Transco Subs in exchange for Transco Subs stock and ~$1.2B cash Entergy Balance Sheet Effects: $B Utility OpCos Assets Liab/Equi
Slide 24: The Transaction – Step 5: Utility OpCos Pay Down Debt
The Transaction – Step 5: Utility OpCos Pay Down Debt 1 Illustrative Description – Step Utility OpCos repay ~$1.7B of outstanding debt Balance Sheet Effects: $B Entergy Consolidated 1 Illustrative / simplified depiction of transaction; not all steps shown. Entergy’s non-utility business also not sho
Slide 25: The Transaction – Step 6: Entergy Receives Transco Subs Stock
The Transaction – Step 6: Entergy Receives Transco Subs Stock 1 Illustrative Description – Step 6 Entergy Utility OpCos dividend Shareholders Transco Subs stock up to Entergy parent; Entergy investment in Utility decreases by investment 6 in Transco Subs Transco Entergy Subs stock Balance Sheet Effe
Slide 26: The Transaction – Step 7: New Holdco Formed, Capitalized
The Transaction – Step 7: New Holdco Formed, Capitalized 1 Illustrative Description – Step 7 Entergy Entergy forms New Holdco Shareholders and contributes 100% of Transco Subs stock for New Holdco stock and $0.575B debt securities (intercompany) Entergy Balance Sheet Effects: $B Entergy Parent Asset
Slide 27: The Transaction – Step 8: New Holdco Spin-off
The Transaction – Step 8: New Holdco Spin-off 1 Illustrative Description – Step 8 Entergy Shareholders Entergy spins-off New Holdco to Entergy 8 shareholders New Holdco stock Balance Sheet Effects: $B Entergy Entergy Consolidated Assets Liab/Equity Net (3.2) B LT Debt 0.1 Assets LT Debt (1.2) SecH 0
Slide 28: The Transaction – Step 9: Entergy Debt Exchange
The Transaction – Step 9: Entergy Debt Exchange 1 Illustrative Description – Step 9 Entergy Shareholders Entergy exchanges New Holdco securities for 8 1 Entergy debt issued in New Holdco stock New Bond step 1 Holders 6 9 Transco Entergy Subs stock Balance Sheet Effects: $B Entergy Consolidated 2 $0.
Slide 29: The Transaction – Step 10: New Holdco Merger with ITC
The Transaction – Step 10: New Holdco Merger with ITC 1 Illustrative Entergy ITC Shareholders Shareholders Entergy ITC New Holdco stock ITC & $0.575B debt Subsidiaries securities 10 Mid South Merger Entergy TransCo LLC T-Business (New Holdco) Entergy T Subs Description – Step 10 New Holdco merges wi
Slide 30: Pathway to Completion – Required Approvals
Pathway to Completion – Required Approvals Approvals Required* Jurisdiction / Authority Approval(s) Entergy retail • Change of control of transmission assets regulators • Authorization to incur debt in some jurisdictions (APSC, LPSC, MPSC, PUCT, CCNO) FERC • Change of control of transmission assets
Slide 31: After Transaction Closing – Good for All Stakeholders
After Transaction Closing – Good for All Stakeholders Strong credit Ability to attract capital Singular focus – New technology – Throughput – Reliability – Regional congestion Organization focus vs professional dissonance Complete independence Value of transaction 29
Slide 32: After the Transaction – Good for Entergy Shareholders
After the Transaction – Good for Entergy Shareholders Sources of Shareholder Value Fair price for Entergy’s transmission business Two stocks: Entergy + 50.1% of ITC – Retains Utility net income growth proposition and EWC option value – Adds ITC’s operating and development growth portfolio Combinatio
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Slide 34: Appendix I Supplemental Information
Appendix I Supplemental Information 32
Slide 35: Entergy Long-term Financial Outlook (Excludes Transaction)
Entergy Long-term Financial Outlook (Excludes Transaction) Overarching Financial Aspiration: Top-Quartile Total Shareholder Return Earnings Capital Return Credit Quality • Utility Net Income • Balanced capital • Strong liquidity and solid Growth investment / return credit metrics – 6 – 8% CAGR 2010
Slide 36: 2011 and 2012 Earnings Guidance
2011 and 2012 Earnings Guidance As-Reported and Operational EPS 2012E Guidance (after-tax) – Prepared Nov 2011 2012 As-Reported Guidance excludes any potential Net $(1.30) special items associated with 7.40 Midpoint transaction expenses 7.15 – 7.65 Range Net $(0.60) Net $0.30 5.80 Midpoint 5.40 – 6.
Slide 37: Capital Deployment – Investment Above Depreciation
Capital Deployment – Investment Above Depreciation Projected Capital Expenditures Investing Capital – Preliminary 2012E – 2014E; $B – Prepared Nov 2011 2012E – 2014E; % of Total – Prepared Nov 2011 Preliminary Preliminary 3.1 Maintenance Investing Capital Capital Portfolio Transformation Other Gener