Filed by Public Service Enterprise Group Incorporated
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12 under
the Securities Exchange Act of 1934
Subject Company:
Public Service Enterprise Group Incorporated
(Commission File No. 001-09120)
1
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 future financial and
operating performance and results, including estimates for growth. There are a
number
of risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements made herein. A discussion of
some of these risks and uncertainties is contained or referred to in the Current
Reports
on Form 8-K filed with the SEC on December 20, 2004 by Exelon and
PSEG, respectively. These risks, as well as other risks associated with the merger,
will be more fully discussed in the joint proxy statement/prospectus that will be
included in the
Registration Statement on Form S-4 that Exelon will file with the
SEC in connection with the proposed merger. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this
presentation. Neither Exelon nor PSEG undertakes any obligation to
publicly release any revision to its forward-looking statements to reflect events or
circumstances after the date of this presentation.
Safe Harbor Language
2
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 mailed to security
holders in connection with the proposed merger of Exelon and PSEG. WE URGE INVESTORS AND
SECURITY HOLDERS TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND ANY OTHER
RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION about Exelon, PSEG and the proposed merger. Investors and security
holders will be able to obtain these
materials (when they are available) and other documents filed with
the SEC free of charge at the SEC's website, www.sec.gov. In addition, a copy of the joint proxy
statement/prospectus (when it becomes available) may be obtained free of charge
from Exelon
Corporation, Investor Relations, 10 South Dearborn Street, P.O. Box 805398, Chicago, Illinois 60680-
5398, or from PSEG, Investor Relations, 80 Park Plaza,. P.O. Box 1171, Newark, New Jersey 0
7101-1171.
The respective directors and executive officers of Exelon
and PSEG and other persons may be
deemed to be participants in the solicitation of proxies in respect of the proposed transaction.
Information regarding Exelon’s directors and executive officers is available in its proxy statement
filed with the SEC by Exelon on March 12, 2004, and information regarding PSEG’s directors and
executive
officers is available in its proxy statement filed with the SEC by PSEG on March 10, 2004.
Other information regarding the participants in the proxy solicitation and a description of their direct
and indirect interests, by security holdings or otherwise,
will be contained the joint proxy
statement/prospectus and other relevant materials to be filed with the SEC when they become
available.
3
John W. Rowe
Chairman, President & CEO
Exelon Corporation
4
Agenda
Overview: John W. Rowe, Chairman, President and
CEO, Exelon
Combined Profile: E. James Ferland, Chairman,
President and CEO, PSEG
Power Generation Platform: John F. Young, EVP,
Exelon, and President, Exelon Generation
Nuclear Profile: Christopher M. Crane, SVP, Exelon,
President and CNO, Exelon Nuclear
Financial Impact and Synergies: Thomas M. O’Flynn,
CFO, PSEG, and Robert S. Shapard, CFO, Exelon
Summary and Q&A
5
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
6
Key Transaction Terms
Offer Price:
Ownership:
Governance:
Timing:
Nuclear Agreement:
Approvals:
1.225 shares of Exelon per PSEG share
68% Exelon shareholders
32% PSEG shareholders
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
Expected to close within 12-15 months
Operating Services Contract starts 1/05
Shareholders, Federal, State
7
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 Transition Implementation Plans
Receive Regulatory
Approvals
* Notice filing only
Implement Nuclear Operating Services Agreement
8
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 in 2005
Secure and growing dividend
Strong balance sheet
9
E. James Ferland
Chairman, President & CEO
PSEG
10
2003A
2003A
2003
Rank
Elec. Customers
5,100,000
2,000,000
7,100,000
1
Gas Customers
460,000
1,600,000
2,060,000
7
U.S. Generation Assets
(MW)
(1)
34,467
17,117
51,584
1
Nuclear Generation(MW)
16,943
3,510
20,453
1
$’s in Billions
Total As
sets
$41.9
$28.1
$70.0
1
Market Cap (12/15/04)
$28.7
$10.6
$39.3
1
Total Revenues
$15.8
$11.1
$26.9
1
Net Income
(2)
$1.7
$0.9
$2.6
1
(1)
Projected 2004 year-end. Generation numbers include long-term contracts.
(2)
Income from Continuing Operations
Combined
The Nation’s Premier Utility Company
11
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
12
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
Expertise in BGS auction
development and participation
Strong gas LDC experience
Exelon Brings
Premier nuclear operation
expertise
Broad platform for earnings and
cash flow growth
Large merger integration success
13
Opportunity For Improved T&D Reliability
$191
2.88
76
0.63
Performance
PSE&G
$235
2.40
70
1.09
Performance
Exelon
Quartile
Quartile
2nd
2nd
Safety (OSHA Recordables Rate)
1st
3rd
Total T&D $/Customer
2nd
4th
Customer Satisfaction (ACSI)
1st
2nd
Reliability – Outage Frequency (SAIFI)
2003 Key Performance Indicators
PSE&G has proven track record for reliable, cost effective T&D operations
Exelon reliability has improved -- committed to further improvements
Focus on customer satisfaction
14
John F. Young
EVP Exelon Corporation & President
Exelon Generation
15
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 Positions New
Company for Success
16
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 nation's largest and best
functioning wholesale power market
9%
49%
5%
37%
40%
11%
4%
46%
21%
15%
1%
63%
Nuclear
Coal
Gas/Oil
Hydro/Other
17
Improved Dispatch Diversity in Mid-Atlantic
Source: Platt’s PowerDat for 2006 data
(Excluding AEP and Northern Illinois)
$0
$25
$50
$75
$100
$125
$150
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
PJM
Exelon
PSEG
Cumulative PJM Capacity (MW)
18
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
Increased Scale Will Strengthen
Operating Position
19
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 to Realize Benefits of
Assets and Markets
20
Christopher M. Crane
President & CNO Exelon Nuclear
21
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, starting January 2005
Every 1% increase in capacity factor for PSEG’s nuclear fleet generates
pre-tax income of about $12 million
60.0%
70.0%
80.0%
90.0%
100.0%
1999
2000
2001
2002
2003
2004
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
1999
2000
2001
2002
2003
Opportunity For Improved Nuclear
Performance
Exelon Non-Fuel
Production Cost
PSEG Non-Fuel
Production Cost
Exelon-operated
Capacity Factor
PSEG-operated
Capacity Factor
22
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’s experience includes:
Large fleet management
Operating and regulatory performance recovery
Focused issue management
Robust, pragmatic and proven methods and processes
23
Thomas M. O’Flynn
Chief Financial Officer, PSEG
Robert S. Shapard
Chief Financial Officer, Exelon
24
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 1), $150m (year 2)
(primarily allocated to goodwill and capital)
Improved nuclear operations starting in 2005 with operating
services contract
Proven record of cost reduction through The Exelon Way
Implementation of best practices
Workforce reduction of approximately 5% through retirements,
attrition and severance
25
$500 Million of Synergies in Year 2
7%
9%
34%
39%
11%
Trading
Genco Corp/
Fossil
T&D
Corporate,
Business
Services
Nuclear (1)
15%
16%
43%
9%
Corporate
Programs
Info
Technology
Staffing
Supply
By Business
By Category
Nuclear
Production
Improvements
14%
3%
Nuclear
Outage
Costs
(1) Includes cost and production improvement
26
(1)
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)
Energy
Holdings
9%
ComEd
22%
Genco
36%
PECO
12%
PSE&G
21%
7%
16%
11%
42%
24%
Energy
Holdings
PECO
ComEd
Genco
PSE&G
27
$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
(1)
Assumes 32% PSEG ownership of pro-forma combined company
(2)
NPV based on after-tax synergies assuming reasonable sharing
Value Capture to PSEG Shareholders (1)
Due to Stronger
Growth Platform
and Lower Risk
Profile
28
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
$7.0 billion of estimated additional goodwill
Asset and liability step-ups offset each other
EPS accretion of 3-4% for Exelon and 11-13% for
PSEG in 2006 and 2007
29
Solid Balance Sheet
Exelon and PSEG believe they will retain solid
investment- grade ratings on a combined basis
7.1x
7.0x
EBITDA
Interest Coverage
41%
41%
Debt / Capital
6.2x
5.8x
Funds from Operations
Interest Coverage
31%
28%
Funds from Operations /
Average Total Debt
Year 2
Year 1
Pro Forma Key Ratios (1)
(1) Ratios exclude securitized debt and PSEG Energy Holdings
30
8%
10%
28%
107%
-9%
18%
65%
196%
-10%
40%
90%
140%
190%
240%
S&P 500
S&P Electrics
PSEG
Exelon
Proven Record of Delivering Value
3 -Year
5 -Year
31
PSEG Recent 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
PSEG
S&P Electric Utilities Index
Nuclear
issues
surface
32
(1)
Assumes 68% Exelon ownership of pro-forma combined company
(2)
NPV based on after-tax synergies assuming reasonable sharing
(3)
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 P/E
Value Capture to Exelon Shareholders (1)
Due to Stronger
Growth Platform and
Lower Risk Profile
33
Growing Dividend (1)
(1) Dividends are payable at the discretion of the board of directors
(2) Given 1.225 exchange ratio
34
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%
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 and
increasing environmental constraints
35
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
Lower risk profile
Positioned for growth
(1) NPV of after-tax synergies assuming reasonable sharing
(2) Dividends are payable at the discretion of the board of directors
36
John W. Rowe
Chairman, President & CEO
Exelon Corporation
37
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
38
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 future financial
and operating performance and results, including estimates for growth. There
are a number
of risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements made herein. A discussion of
some of these risks and uncertainties is contained or referred to in the Current
Reports
on Form 8-K filed with the SEC on December 20, 2004 by Exelon and
PSEG, respectively. These risks, as well as other risks associated with the
merger, will be more fully discussed in the joint proxy statement/prospectus
that will be included in the
Registration Statement on Form S-4 that Exelon will
file with the SEC in connection with the proposed merger. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this
presentation. Neither Exelon nor PSEG
undertakes any obligation to publicly release any revision to its forward-looking
statements to reflect events or circumstances after the date of this presentation.
39
