Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - EXELON CORP | d720511d8k.htm |
| EX-99.1 - PRESS RELEASE - EXELON CORP | d720511dex991.htm |
 Exelon Announces Acquisition of
Pepco Holdings, Inc.
April 30, 2014
Exhibit 99.2 |
 1
Cautionary Statements Regarding Forward-Looking
Information
Except for the historical information contained herein, certain of the matters
discussed in this communication constitute “forward- looking
statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended by
the Private Securities Litigation Reform Act of 1995. Words such as
“may,” “might,” “will,” “should,” “could,” “anticipate,” “estimate,”
“expect,” “predict,” “project,”
“future”, “potential,” “intend,” “seek to,” “plan,” “assume,” “believe,” “target,” “forecast,” “goal,”
“objective,” “continue” or the negative of such terms or
other variations thereof and words and terms of similar substance used in
connection with any discussion of future plans, actions, or events identify
forward-looking statements. These forward-looking statements
include, but are not limited to, statements regarding benefits of the proposed merger, integration plans and expected
synergies, the expected timing of completion of the transaction, anticipated
future financial and operating performance and results, including
estimates for growth. These statements are based on the current expectations of management of Exelon Corporation
(Exelon) and Pepco Holdings, Inc. (PHI), as applicable. There are a number of
risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements included in this communication. For example, (1) PHI may be unable to obtain
shareholder approval required for the merger; (2) the companies may be unable
to obtain regulatory approvals required for the merger, or required
regulatory approvals may delay the merger or cause the companies to abandon the merger; (3) conditions to the
closing of the merger may not be satisfied; (4) an unsolicited offer of another
company to acquire assets or capital stock of Exelon or PHI could
interfere with the merger; (5) problems may arise in successfully integrating the businesses of the companies, which may
result in the combined company not operating as effectively and efficiently as
expected; (6) the combined company may be unable to achieve
cost-cutting synergies or it may take longer than expected to achieve those synergies; (7) the merger may involve unexpected
costs, unexpected liabilities or unexpected delays, or the effects of purchase
accounting may be different from the companies’ expectations; (8)
the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;
(9) the businesses of the companies may suffer as a result of uncertainty
surrounding the merger; |
 2
Cautionary Statements Regarding Forward-Looking
Information (Continued)
(10)
the
companies
may
not
realize
the
values
expected
to
be
obtained
for
properties
expected
or
required
to
be
sold;
(11)
the industry may be subject to future regulatory or legislative actions that
could adversely affect the companies; and (12)
the companies may be adversely affected by other economic, business, and/or
competitive factors. Other unknown or unpredictable factors could also
have material adverse effects on future results, performance or achievements of the
combined company. Therefore, forward-looking statements are not guarantees
or assurances of future performance, and actual results could differ
materially from those indicated by the forward-looking statements. Discussions of some of these
other important factors and assumptions are contained in Exelon’s and
PHI’s respective filings with the Securities and Exchange
Commission
(SEC),
and
available
at
the
SEC’s
website
at
www.sec.gov,
including:
(1)
Exelon’s
2013
Annual
Report on Form 10-K in (a)
ITEM
1A. Risk Factors, (b)
ITEM
7. Management’s Discussion and Analysis of Financial Condition
and
Results
of
Operations
and
(c)
ITEM
8.
Financial
Statements
and
Supplementary
Data:
Note
22;
and
(2)
PHI’s
2013
Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 15. In light of
these risks, uncertainties, assumptions and factors, the forward-looking
events discussed in this communication may not occur. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the
date of this communication. Neither Exelon nor PHI undertakes any obligation to
publicly release any revision to its forward- looking statements to
reflect events or circumstances after the date of this communication. New factors emerge from time
to
time,
and
it
is
not
possible
for
Exelon
or
PHI
to
predict
all
such
factors.
Furthermore,
it
may
not
be
possible
to
assess
the
impact of any such factor on Exelon’s or PHI’s respective businesses
or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking statement. Any specific factors
that may be provided should not be construed as exhaustive.
|
 3
Agenda
Transaction Overview and Exelon
Strategic Rationale
Chris Crane
President and CEO, Exelon
Benefits to PHI Shareholders and
Customers
Joe Rigby
Chairman, President and CEO,
Pepco Holdings
Combined Company Profile
and Financial Summary
Jack Thayer
Executive Vice President and
CFO, Exelon
Closing Comments
Chris Crane
President and CEO, Exelon
Q&A Session |
 4
Executive Summary
•
A
strategic
acquisition
that
creates
the
leading
Mid-Atlantic
electric
and
gas
utility. The combined utility businesses will serve nearly 10 million customers,
with a rate base of ~$26 billion.
•
Purchase price of
$27.25 per share.
•
Earnings composition supports incremental leverage and is expected to be highly
accretive
to
operating
earnings
starting
in
the
first
full
year
post-close
with
steady-
state accretion of $0.15-$0.20 per share starting in 2017
•
Increases Exelon’s
utility derived earnings and cash flows, providing a solid base
for the dividend and
maintaining the upside from a recovery in power markets.
•
Balanced financing mix allows Exelon to maintain balance sheet strength
and
provides flexibility to continue to invest in opportunities aligned with our growth
strategy.
•
The combination of Exelon and Pepco Holdings (PHI) will offer significant benefits
to customers. |
 5
Strategic Rationale
Growing regulated
cash flow and
earnings while
maintaining
upside from power
price recovery
Strong financial fit
Strong
geographic fit and
operations mix |
 6
Expertise in Operating Regulated Utilities in Large
Metropolitan Areas
Commonwealth Edison
Potomac Electric Power
Customers:
Service Territory:
Peak Load:
2013 Rate Base:
3,800,000
11,400 sq.
miles
23,753 MW
$8.7 bn
Customers:
Service Territory:
Peak Load:
2013 Rate Base:
801,000
640 sq. miles
6,674 MW
$3.4 bn
PECO Energy
Atlantic City Electric Co.
Customers:
Service Territory:
Peak Load:
2013 Rate Base:
2,100,000
2,100 sq. miles
8,983 MW
$5.4 bn
Customers:
Service Territory:
Peak Load:
2013 Rate Base:
545,000
2,700 sq. miles
2,797
MW
$1.6 bn
Baltimore Gas & Electric
Delmarva Power & Light
Customers:
Service Territory:
Peak Load:
2013 Rate Base:
1,900,000
2,300 sq. miles
7,236 MW
$4.6 bn
Customers:
Service Territory:
Peak Load:
2013 Rate Base:
632,000
5,000 sq. miles
4,121 MW
$2.0 bn
___________________________
Source: Company filings.
Note: Operational statistics as of 12/31/2013
DE
MD
PA
NJ
VA
Philadelphia
Baltimore
Dover
Wilmington
Trenton
Washington, DC
IL
Chicago
Potomac Electric Power Service Territory
Atlantic City Electric Co. Service Territory
Delmarva Power & Light Service Territory
Baltimore Gas and Electric Co. Service Territory
PECO Energy Service Territory
ComEd Service Territory
Operating Statistics
Combined Service Territory |
 7
Transaction Overview
Consideration
Headquarters
Governance
All-cash transaction
Upfront
transaction
premium
of
24.7%
(1)
Corporate headquarters: Chicago
No change to utilities’
headquarters
Significant employee presence maintained in IL, PA, MD, DC,
DE and NJ
President and CEO: Chris Crane
No change to Exelon senior management team
No change to Exelon Board of Directors
Expect
to
close
2
nd
or
3
rd
quarter
2015
PHI shareholder approval later in 2014
Regulatory approvals including FERC, DOJ, DC, DE, MD, NJ and VA
(1)
Based on PHI closing stock price as of April 25, 2014.
(2)
Subject to market conditions
~50% debt
Remainder
via
issuance
of
equity
(including
mandatory
convertibles)
and
up
to
$1B
of
cash
from
non-core
asset
sales
(2)
Approvals and Timing
Financing |
 8
Regulatory Approval Timeline
•
Applications for approval will be filed as promptly as possible and no later
than 60 days from the time of the announcement.
•
FERC has 180 days to review the transaction and issue an order. We
would expect approvals by FERC, Virginia and DOJ within 180 days.
•
Expect Maryland PSC to issue a merger order within 225 days of the
application as required by law.
•
Anticipate other state commissions may take as long as Maryland or
slightly longer to review merger applications.
•
Targeting
a
2
or
3
quarter
2015
closing.
rd
nd |
 9
•
Attractive 24.7% premium
(1)
for PHI shares
•
Commitment to build upon significant improvements in system reliability,
customer service and outage restoration
•
Direct benefits for Atlantic City Electric, Delmarva Power and Pepco’s
customers $100 million Customer Investment Fund for rate credits, low
income assistance, energy efficiency programs
Commitment to further improve system reliability
Enhanced storm restoration capabilities
•
Shared culture of continuous improvement, accountability, safety, and
community support
Leverage operational and customer service best practices
Commitment to highest ever levels of charitable giving for 10 years
Delivering Value to PHI’s Shareholders, Employees, Customers
and Local Communities
(1) Based on PHI closing stock price as of April 25, 2014. •
Immediately takes PHI to the “next level”
as part of larger, well capitalized
company |
 Financial Overview |
 11
Transaction Economics Are Attractive
(1)
(3)
(1)
Reflects 2015 YE rate base
•
Significantly earnings accretive starting in first full year after closing.
Anticipate run-rate accretion of $0.15-$0.20 per share starting
in 2017.
•
Supports incremental leverage at Exelon and maintains investment grade ratings
at Exelon and PHI entities. •
An incremental ~$8.3 billion
(1)
in regulated rate base adds meaningful size to Exelon’s
regulated business -- bolstering regulated earnings, stable cash flows
and financial strength. •
~$3.1 billion of regulated CapEx during 2015-2017 adds attractive rate base
growth opportunities to supplement Exelon’s current investment
program.
•
Utility earnings can fully support Exelon dividend of $1.24 per share by 2015.
•
Net synergies of more than $250 million over the first five years, of which
one-third is retained. •
Preserves power market recovery upside.
•
Committed financing in place with balanced permanent financing mix. |
 12
Earnings Accretive First Full Year
(1)
Transaction Economics
Exelon Consolidated S&P FFO/Debt
2016
2015
(1) Assumes funding mix of assumed debt, new debt, asset sales and equity
issuance with appropriate discount to market price (2) Reflects YE rate
base The transaction is significantly EPS accretive, adds to rate base
growth and further strengthens our financials
2015-2016 Operating Earnings
60%-65%
35%-40%
Pro
Forma
Business
Mix
Regulated
Unregulated
Rate Base Growth ($B)
(2)
2016
$31.8
$23.0
$8.8
2015
$30.0
$21.7
$8.3
2014
Exelon
PHI
2017
2016
$0.10 -
$0.15
$0.15 -
$0.20
$20.0
24%
22%
Achieve run-rate
accretion of
$0.15-$0.20
starting in 2017
+6%
+50% |
 13
Financing Overview
Committed $7.2 billion bridge facility signed and in place to support the
contemplated transaction and provide flexibility for timing of
permanent financing.
Interim
Financing
Permanent
Financing
Exelon will use a balanced mix of debt, equity and cash to finance the
acquisition in order to maintain current investment grade ratings at all
registrants Strong liquidity profile for combined company, supported by
revolving credit facilities totaling $9.5 billion.
Adequate liquidity will be maintained to support all utility operations.
Opportunities to right size liquidity facilities will be explored.
Liquidity
No change of control provisions in public debt of PHI or subsidiaries.
Future PHI maturities expected to be refinanced at Exelon Corp as needed
–
no further debt issuance at PHI expected post-closing.
Exelon
Corporation
debt
will
be
used
for
regulated
investment
in
utilities;
Exelon
Generation
debt
will
be
used
to
fund
competitive
growth.
Go Forward
Financing Plan
(1)
Subject to market conditions
Financing structure fully expected to maintain investment grade ratings at
all Exelon and PHI registrants.
Permanent financing will include Exelon Corp debt, equity (including
mandatory
convertibles)
and
cash
proceeds
from
asset
sales
(1)
. |
 14
Closing Comments
•
Transaction is another example of our actions to grow our company, our
earnings and our returns to our shareholders.
•
Opportunity to create significant customer savings and build upon existing
reliability enhancements.
•
Tremendous value unlocked through the addition of incremental regulated
operating earnings and cash flows.
•
Accelerates
our
ability
to
fully
fund
the
external
dividend
from
our
regulated
operations.
•
Balance sheet remains strong after this transaction and allows us flexibility
to pursue additional regulated and merchant investments.
|
 Appendix |
 16
Standalone
Pro Forma
Exelon
PHI
Regulated Jurisdictions
IL, MD, PA
DC, DE, MD, NJ
DC, DE, IL, MD, NJ,
PA
Electric Customers (in M)
6.65
1.85
8.50
Gas Customers (in M)
1.15
0.13
1.28
Total Customers (in M)
7.80
1.98
9.78
Utility Service Area (Square Miles)
15,800
8,340
24,140
Electric Transmission (Miles)
7,404
4,600
12,004
Electric Distribution (Miles)
113,345
34,100
147,445
Gas Transmission (Miles)
194
105
299
Gas Distribution (Miles)
13,818
3,157
16,975
A Compelling Combination –
Creates The Premier
Mid-Atlantic Utility Franchise
___________________________
Source: Company filings.
Note: Operational statistics as of 12/31/2013
Combined Statistics |
 17
$700
$600
$550
$350
$300
$325
Exelon Utilities: Capital Expenditures and Rate Base
(1)
2016E
$4,300
$1,925
$425
$800
$275
2015E
$4,425
$2,025
$475
$800
$225
2014E
$4,725
$1,775
$825
$825
$250
ComEd
PECO
BGE
Pepco
DPL
ACE
Strong rate base growth will provide stable utility earnings growth
Rate Base ($B)
Capital Expenditures ($M)
(2)
$4.0
$4.3
$2.4
$2.5
$3.8
$2.3
2016E
$6.1
$5.3
$11.6
$2.0
$30.0
$10.7
$5.9
$5.1
$1.8
2014E
$27.7
$9.5
$5.7
$4.8
$1.7
2015E
$31.8
(1) Illustrative view of combined company
(2) Numbers rounded to nearest $25 million |
 18
Pro Forma Debt Maturity Profile
(1)
310
2022
1,433
700
2016
1,557
102
190
1,265
2015
1,975
115
250
260
800
2014
632
382
250
550
600
523
2021
889
239
650
2020
1,600
500
1,100
2019
912
12
300
600
2018
1,594
254
1,340
2017
1,220
14
81
425
ExCorp
PHI Holdco
PHI Regulated
EXC Regulated
ExGen
Ample liquidity and manageable debt maturities
(1) PHI
Regulated
debt
includes
$100
mm
term
loan
which
matures
in
2014;
ExGen
debt
includes
former
CEG
debt
assumed
by
ExGen;
Excludes
PHI
unregulated
debt
which
totals
$25
mm;
Includes
Exelon’s
regulated
capital
trust
securities;
Excludes
tax-exempt,
preferred
and
non-recourse
debt;
Acquisition
debt
will
be
held
at
corporate
but
is
not
included.
Source
Bloomberg,
Company
Filings. |
 19
Corporate Structure
Exelon Corporation
Commonwealth Edison
Baltimore Gas &
Electric
Potomac Electric
Power Company
Delmarva Power &
Light
Atlantic City Electric
Company
Exelon Energy
Delivery Company
Conectiv
Pepco Holdings
SPE
RF Holdco
Exelon Generation
Pepco Energy
Services
Type
Amt ($mm)
FMB
$650
Notes
$200
Tax Exempt
$78
Medium
Term Notes
$40
Total
$968
Type
Amt ($mm)
FMB
$761
Transition
Bonds
(2)
$246
Term Loan
$100
Total
$1,107
Type
Amt ($mm)
Recourse
(2)
$11
Total
$11
Type
Amt ($mm)
FMB
(2)
$2,310
Total
$2,310
Type
Amt ($mm)
Secured
Notes
$14
Total
$14
Type
Amt ($mm)
Notes
$706
Total
$706
Type
Amt ($mm)
Notes
$1,750
Rate Stabilization
(2)
$265
Trusts
$258
Total
$2,273
Type
Amt ($mm)
FMB
$5,579
Trusts
$206
Other
$140
Total
$5,924
Type
Amt ($mm)
FMB
$2,200
Trusts
$184
Total
$2,384
Type
Amt ($mm)
Notes
(1)
$5,771
Non-Recourse
(2)
$1,516
Total
$7,287
Type
Amt ($mm)
Notes
$1,300
Total
$1,300
PECO Energy
Potomac
Capital
Investment Corporation
Note: Simplified organizational chart; additional subsidiaries are not shown.
Former direct and indirect subsidiaries of PHI are in red; newly created ring fencing entity is in green
Note: Debt outstanding is as of 3/31/14; does not include any projected
acquisition financing (1)
Includes intercompany loan agreements between Exelon and Generation that mirror
the terms and amounts of the third-party obligations of Exelon
(2)
The following retirements occurred in April 2014 and are not reflected on the
chart above: PCI Recourse Debt - $11M, PEPCO FMB $175M, ACE Transition Bonds - $10M, BGE
Rate Stabilization Bonds - $35M, various ExGen Project Finance Debt -
$3M |