Exelon Corporation · NASDAQ:EXC
Exelon — Merger or Acquisition (February 2005)
48 slides from Exelon's merger presentation, Feb 7, 2005
Slide 1: Investor Meetings Dallas, Houston, New York, Chicago February 7-9, 2005
Investor Meetings Dallas, Houston, New York, Chicago February 7-9, 2005
Slide 2: Safe Harbor Language
This presentation includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, for example, statements regarding benefits of the proposed merger, integration plans, and expected synergies, anticipated futu
Slide 3: Additional Information
Additional Information This communication is not a solicitation of a proxy from any security holder of Exelon or PSEG. Exelon intends to file with the Securities and Exchange Commission a registration statement that will include a joint proxy statement/prospectus and other relevant documents to be m
Slide 4: Agenda
Agenda Overview Power Generation Platform Financial Impact and Synergies Appendix Exelon and PSEG Financial Summaries Purchase Accounting/Costs to Achieve
Slide 5: A Compelling Combination
A Compelling Combination Large, balanced energy portfolio across PJM Enhanced service to the largest customer base in the industry Improved nuclear performance Common business and regulatory framework Strengthened financial performance driven by significant synergies and enhanced base and scope
Slide 6: Key Transaction Terms
Key Transaction Terms Offer Price: 1.225 shares of Exelon per PSEG share Ownership: 68% Exelon shareholders 32% PSEG shareholders Governance: John W. Rowe to be CEO E. James Ferland to be non-executive Chairman 18 Board members - 12 nominated by Exelon - 6 nominated by PSEG Timing: Expected to close
Slide 7: Closing Achievable in 12-15 months
Dec 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Closing Achievable in 12-15 months Announce Transaction Exelon & PSEG Shareholder Meetings Make Regulatory Filings File Joint Proxy Statement Work to Secure Regulatory Approvals (FERC, SEC, NRC, DOJ or FTC, NJBPU, NJDEP*, PAPUC, ICC*, NYPSC) Develop T
Slide 8: Financial Benefits
Financial Benefits Stronger platform to achieve consistent earnings growth Annual synergies of approximately $400 million in year 1 growing to $500 million by year 2 Earnings accretion for both companies' shareholders in year 1 Nuclear contract provides earnings benefit for both companies starting i
Slide 9: The Nation's Premier Utility Company
Projected 2004 year-end. Generation numbers include long-term contracts. (2) Income from Continuing Operations Combined The Nation's Premier Utility Company
Slide 10: Creating A Larger Growth Platform
EAST Generation Nuclear 9,400 MW Non-nuclear 15,700 MW WEST Generation Nuclear 11,100 MW Non-nuclear 5,850 MW Creating A Larger Growth Platform A combination of three urban utilities, with a low-cost generation portfolio, in an integrated Regional Transmission Organization
Slide 11: A "Win-Win" Combination
A "Win-Win"Combination Combined Company Enhanced earnings Regulatory and market diversity Increased operating flexibility Strong, stable cash flow with commitment to solid investment grade ratings Experienced management team PSEG Brings Excellence in transmission and distribution operations Expertis
Slide 12: Opportunity For Improved T&D Reliability
Opportunity For Improved T&D Reliability 2003 Key Performance Indicators Exelon Exelon PSE&G PSE&G Performance Quartile Performance Quartile Reliability - Outage Frequency (SAIFI) 1.09 2nd 0.63 1st Customer Satisfaction (ACSI) 70 4th 76 2nd Safety (OSHA Recordables Rate) 2.40 2nd 2.88 2nd Total T&D
Slide 13: Power Generation Platform
Exelon. €>) PSEG Power Generation Platform
Slide 14: Strong Generation Platform
Strong Generation Platform Premier nuclear operator, based on consistent top quartile performance Balanced and diverse generation portfolio Reliable and commercially responsive fossil operations Experienced leader in wholesale power marketing and risk management Complementary Generation Portfolio Po
Slide 15: Balanced Generation Portfolio
Balanced Generation Portfolio Projected 2004 year-end domestic generation capacity (includes long-term contracts) Exelon PSEG Exelon/PSEG 34,467 MWs 17,117 MWs 51,584 MWs Balanced fuel, geography and dispatch with improved load serving capabilities Bulk of generation assets are within PJM, the natio
Slide 16: Improved Dispatch Diversity in Mid-Atlantic
Improved Dispatch Diversity in Mid-Atlantic Source: Platt's PowerDat for 2006 data (Excluding AEP and Northern Illinois) Cumulative PJM Capacity (MW) PJM Exelon PSEG Asbury Park 352.8 0 Bear Creek 372.8 0 Five Fathom Bank 2 1058.8 0 Five Fathom Bank 3 2023.6 0 Forward Wind Farm 2053.6 0 Great Egg 24
Slide 17: Track Record of Operational and Commercial Excellence
Track Record of Operational and Commercial Excellence Proven model of operations in fossil Significant improvement in reducing fossil forced outage rate at Exelon Experience in integrating plants on a national operating platform Exelon generating fleet reliably responds to market opportunities Incre
Slide 18: Power Marketing and Trading
Power Marketing and Trading Both companies have well-grounded philosophy of hedging and risk management Enhanced geographic and customer diversity Improved asset optimization Improving market fundamentals (i.e. tightening reserve margins/higher capacity prices) in all regions Skills and Experience t
Slide 19: Opportunity For Improved Nuclear Performance
Exelon has proven track record of improving and sustaining safety, operating and cost performance Significant opportunity to improve PSEG fleet performance under Nuclear Operating Services Contract, started January 2005 Every 1% increase in capacity factor for PSEG's nuclear fleet generates pre-tax
Slide 20: Exelon's Nuclear Track Record
Exelon's Nuclear Track Record Exelon's performance record is grounded in its Nuclear Management Model Performance tools include: Material condition improvement process Refueling outage execution Cost management strategies Operating fundamentals focus Experienced management and technical team Exelon'
Slide 21: Market Power Mitigation Proposal
Market Power Mitigation Proposal 2/4/05 FERC Filing proposed the following: Outright divestiture: 550 MWs of coal-fired capacity 1,350 MWs of mid-merit capacity 1,000 MWs of peaking capacity All in PJM East "Virtual" divestiture: 2,600 MWs of baseload nuclear capacity (2,400 MWs in PJM East) Transfe
Slide 22: Financial Impact and Synergies
Financial Impact and Synergies
Slide 23: Synergies Across All Business Segments
Synergies Across All Business Segments Delivering approximately $400 million (year 1) growing to $500 million (year 2) in annual pre-tax synergies, excluding costs to achieve 85% cost synergies, 15% nuclear production improvement 70% unregulated, 30% regulated synergies Cost to achieve: $470m (year
Slide 24: $500 Million of Synergies in Year 2
$500 Million of Synergies in Year 2 Corporate/BSC 0.39 T&D 0.11 GENCO Corp 0.07 Trading 0.09 Nuclear 0.34 7% 9% 34% 39% 11% Trading Genco Corp/ Fossil T&D Corporate, Business Services Nuclear (1) Staffing 0.43 Nuclear Production Improvements 0.14 Nuclear Outages 0.03 IT 0.09 Corp Programs 0.15 Suppl
Slide 25: Balanced Financial Profile
Net of inter-company transactions, synergies and merger adjustments (2) Adjusted for securitization impact 2006E EBITDA = $7.0 billion Pro Forma EBITDA(1)(2) (2006 E) Balanced Financial Profile 2006E Assets = $79 billion Pro Forma Assets (2006 E) Assets PECO 9482 ComEd 17152 PSE&G 16696 Genco 28644
Slide 26: Value Capture to PSEG Shareholders
$1.8 - $2.0 B $2.0 - $3.0 B Premium To PSEG NPV Synergies (2) > $4.0 B Value To PSEG Shareholders Premium P/E Assumes 32% PSEG ownership of pro-forma combined company NPV based on after-tax synergies assuming reasonable sharing Value Capture to PSEG Shareholders (1) Due to Stronger Growth Platform a
Slide 27: Pro Forma Accretion Assumptions
Pro Forma Accretion Assumptions Gross synergies of $400m (year 1) and $500m (year 2) 70% unregulated, 30% regulated Financial impact of any regulatory mitigation assumed to be neutral Purchase accounting adjustments expected to be income neutral $7.9 billion of currently estimated additional goodwil
Slide 28: Solid Balance Sheet
Solid Balance Sheet Exelon and PSEG believe they will retain solid investment-grade ratings on a combined basis Pro Forma Key Ratios (1) Year 1 Year 2 Funds from Operations / Average Total Debt 28% 31% Funds from Operations Interest Coverage 5.8x 6.2x EBITDA Interest Coverage 7.0x 7.1x Debt / Capita
Slide 29: Available Cash 2007
Ong 0 EXC PEG Merger Adj EEG $ in Billions 2007 2007 2007 2007 Estimated Net Income oe 10 O80 @ 35 Depreciation & Amortization 19 10 = 29 CapEx (2.0) (08) (0.1) © (3.0) Dividends (1.2) (0.6) = (1.8) Cash Before Debt Maturities 09 05 02 16 Securitized Debt Retired (0.6) (0.2) = (0.8) Available Cash 0
Slide 30: Capital Structure Optimization
Capital Structure Optimization Share repurchases set the bar for use of estimated $800 million available cash (post merger) Insignificant impact on pro-forma credit ratios Potential for further optimization beyond available cash flow
Slide 31: Proven Record of Delivering Value
S&P 500 S&P Electrics PSEG Exelon 3-Year 0.08 0.1 0.28 1.07 5-Year -0.09 0.18 0.65 1.96 10-Year 1.14 2.07 4.28 Proven Record of Delivering Value 3 -Year 5 -Year
Slide 32: PSEG Stock Price Performance
PSEG Stock Price Performance Combination provides opportunity for long-term improvement in valuation 12/15/03 1/23/04 3/5/04 4/15/04 5/26/04 7/5/04 8/13/04 9/24/04 11/5/04 12/15/04 $35.00 $40.00 $45.00 $50.00 $55.00 Indexed Price PSEG S&P Electric Utilities Index Nuclear issues surface
Slide 33: Value Capture to Exelon Shareholders
Assumes 68% Exelon ownership of pro-forma combined company NPV based on after-tax synergies assuming reasonable sharing 2005 P/E discount to Exelon on 12/15/04 ($1.8-$2.0B) $450 - $500 M $5.5-$6.5 B Premium To PSEG PSEG P/E Discount (3) NPV Synergies (2) > $4.0 B Value To Exelon Shareholders Premium
Slide 34: Growing Dividend
PSEG current dividend $2.20 PSEG expected 2005 increase .04 PSEG pro forma $2.24 Exelon dividend required to keep PSEG shareholders whole (2) $1.83 Current Exelon dividend $1.60 Expected Exelon increase $0.23 or 14% Growing Dividend (1) (1) Dividends are payable at the discretion of the board of dir
Slide 35: Earnings Upside from Improving Wholesale Market Fundamentals
Earnings Upside from Improving Wholesale Market Fundamentals Large, low-cost, low-emissions generation fleet Built and sited to serve native utility load Illinois transition to market prices Improving capacity values in all regions served, led by eastern PJM Will also benefit from high energy prices
Slide 36: Significant Financial Outcome
Significant Financial Outcome $8-9 billion present value of synergies (1) PSEG valuation discount mitigates merger premium 14% higher dividend for Exelon shareholders, PSEG shareholders kept whole (2) 11-13% accretion in 2006/2007 for PSEG 3-4% accretion in 2006/2007 for Exelon Strong balance sheet
Slide 37: A Compelling New Company
A Compelling New Company Combination of two strong industry leaders Increased scale and scope Complementary operations/business models Low-cost supply portfolio Disciplined financial policy Highly experienced management team
Slide 38: Appendix
APPENDIX Exelon and PSEG Financial Summaries Purchase Accounting/Costs To Achieve
Slide 39: 2004 Exelon Financial Summary
2004 Exelon Financial Summary $2.78 Operating Earnings (+6.5% over 2003) Core growth in retail volumes Higher generation margins Acquisition of the second half of AmerGen Exelon Way cost savings Reduced losses at Enterprises Lower interest expense Dividend increases totaling 60% in 2004 (current ann
Slide 40: Exelon 2005 Guidance and EPS Drivers
2004 Guidance Weather ComEd CTC Amort. / Depr. Nuclear Outages /Fuel Exelon Way Load Growth Other RNF Interest 2005 Guidance Invisible dataset 0 2.78 2.86 2.81 2.76 2.76 2.81 2.91 2.96 0 Green 2.78 0.11 0.03 0.05 0.05 0.05 0.1 0.05 0.09 3.1 2004A 2005E Interest O&M Expense/ Other ComEd CTC Expected
Slide 41: 2004 PSEG Financial Summary
2004 PSEG Financial Summary $3.05 operating EPS in 2004 impacted by: Hope Creek ($0.34) Replacement Power ($0.15) Polish Zloty ($0.06) Increased annual dividend to $2.20/share in 2004 2005 increase results in indicative annual dividend of $2.24 Maintained leverage ratio at 57% Retired $300M of debt
Slide 42: PSEG 2005 Operating EPS Guidance
PSEG 2005 Operating EPS Guidance 2004 Actual Power PSE&G Energy Holdings Other 2005 Estimate West 726 726 773 773 784 0 0 53 6 23 12 784 + Improved Nuclear & Fossil Operations + Lower Depreciation NDT Transmission Revenue O&M $3.15 - $3.35 $3.05 + Currency Impacts
Slide 43: Estimated Purchase Accounting
Estimated Purchase Accounting The net impact of purchase accounting is expected to be income neutral; however, this result may vary due to changes in interest rates, commodity prices and other factors prior to closing (1). Equity Purchase Price ($ in Billions) $13.3 Allocation of Equity Purchase Pri
Slide 44: Estimated Merger Costs to Achieve
Estimated Merger Costs to Achieve (1) Merger costs are primarily allocated to goodwill and capital, with little income statement impact. Area ($ in Millions) Year 1 Year 2 Account Transaction Costs $70 -- Goodwill Capital Costs (mostly IT) $115 $100 Capital Expenses $50 -- Goodwill Severance, Retent
Slide 45: Exelon GAAP EPS Reconciliation
Exelon GAAP EPS Reconciliation Reconciliation of GAAP Reported and Adjusted (non-GAAP) Operating Earnings per Diluted Share
Slide 46: Exelon Full Year 2004 Cash Reconciliation
Exelon Full Year 2004 Cash Reconciliation
Slide 47: Exelon 2005 Earnings Guidance
Exelon 2005 Earnings Guidance Exelon's adjusted (non-GAAP) operating earnings for 2005 are expected to be in the range of $2.90 to $3.10 per share. Exelon's outlook for adjusted (non-GAAP) operating earnings excludes income resulting from investments in synthetic fuel-producing facilities, the finan
Slide 48: Exelon Cash Flow Definitions
Exelon Cash Flow Definitions We define free cash flow as: Cash from operations (which includes pension contributions and the benefit of synthetic fuel investments), less Cash used in investing activities, less Transition debt maturities Common stock dividend payments at 2003 rates Other routine acti