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)
[EXELON LOGO] [PSEG LOGO]
News Release
FOR IMMEDIATE RELEASE
Contacts:
Exelon
Investor Relations: Michael Metzner, (312) 394-7696
Media Relations: Don Kirchoffner, (312) 394-3001
PSEG
Investor Relations: Brian Smith, (973) 430-6564
Media Relations: Paul Rosengren, (973) 430-5911
Brunswick Group:
Steven Lipin/Michael Buckley, 212-333-3810
EXELON AND PSEG AGREE TO MERGE, FORMING THE NATION'S PREMIER UTILITY COMPANY
Transaction Expected to be Earnings Accretive to Both Companies in First Year
Combined Company Will Serve Over Seven Million Electric Customers and
Two Million Gas Customers in Three States and Create Nation's
Largest Power Generation Platform
Exelon to Provide Operating Assistance for PSEG's Nuclear Plants
Commencing January 2005
CHICAGO and NEWARK (December 20, 2004)--Exelon Corporation (NYSE: EXC) and
Public Service Enterprise Group Incorporated (NYSE: PEG) announced today that
they have entered into a definitive merger agreement to create Exelon Electric &
Gas, the nation's largest utility. The merger, which has been unanimously
approved by both companies' boards of directors, will create a combined company
with total assets of approximately $79 billion, serving seven million electric
customers and two million gas customers in Illinois, New Jersey and
Pennsylvania. The combination of three utility franchises in three different
states with service areas encompassing more than 18 million people will also
allow for improved service and reliability with greater earnings predictability.
The transaction is anticipated to be immediately accretive to both companies'
earnings per share after closing.
The new company will have approximately $27 billion in annual revenues and $3.2
billion in annual net income. With a generation portfolio of approximately 52
thousand megawatts of domestic capacity, including long-term contracts, the
combined company will be the nation's largest power generator and will be a
leading U.S. wholesale power marketer. By sharing resources and best
(more)
Page 2
practices, the merger will enhance operations and create efficiencies at all
levels of the new company, including generation, transmission, distribution and
power marketing.
Under the merger agreement, each common share of PSEG will be converted into
1.225 shares of Exelon. Following the merger, PSEG stockholders will own
approximately 32%, or 306 million of Exelon Electric & Gas' pro-forma shares
outstanding, and Exelon shareholders will own approximately 68%, or 650 million
shares.
John W. Rowe, currently chairman, president and chief executive officer of
Exelon, will become the president and chief executive officer of Exelon Electric
& Gas upon completion of the merger and will be responsible for all operations
of the combined company. Upon completion of the merger, E. James Ferland,
currently chairman, president and chief executive officer of PSEG, will become
non-executive chairman of the board of Exelon Electric & Gas until his planned
retirement in the spring of 2007. The new board will be comprised initially of
12 members nominated by Exelon and 6 members nominated by PSEG.
Mr. Rowe said: "The combination of Exelon and PSEG is a compelling transaction
that satisfies our stated criteria for a merger. It is accretive with sound
returns, it can be accomplished without compromising our financial integrity,
and it creates a strategic mix of assets. With complementary skills and common
regulatory frameworks in three competitive state jurisdictions, all within the
same regional transmission organization, we can create additional scale and
scope that will provide operational synergies well into the future. This
combination is a natural next step on the part of two companies whose assets,
geography and strategies complement one another and whose partnership history is
already established."
Mr. Ferland said: "This is a truly unique opportunity for two major companies.
Exelon is the leader in the nuclear generation business and will have an
immediate positive impact on our operations. By contrast, we are highly regarded
for our expertise in transmission and distribution operations and retail
auctions, which will be a valuable addition to Exelon's business. John Rowe will
bring a wealth of executive experience and success to the new and larger
organization. He is a good, strong leader who understands how to accomplish what
we both envision: the creation of the ideal business model for the utility
industry. Together with the talented employees of both companies, John will
build a new business that will grow shareholder value and serve all our
constituencies well."
Benefits of the Merger
The merger will deliver significant value to customers and shareholders of both
companies:
o Increased scale and scope in both distribution and generation. The
broader service footprint, which includes three urban utility
franchises, will allow for improved service and reliability with
greater earnings predictability. The combined company will have a large
and diverse generation portfolio of approximately 52 thousand megawatts
of domestic capacity in multiple states, including about 20 thousand
megawatts of low-cost nuclear generation. This will reduce all-in power
generation and marketing costs and create a more balanced portfolio in
terms of geography, fuel mix, dispatch, and load-serving capability. In
addition, the bulk
Page 3
of both companies' generation assets are strategically located within
PJM, the nation's largest and best-functioning regional transmission
organization and wholesale power market stretching from the
mid-Atlantic to the Midwest. The result will be improved asset
optimization by the combined power-marketing business of the new
company.
o Customer and community benefits. The merger will provide customer
benefits by enhancing operations and strengthening reliability. The
merged company will draw upon the intellectual capital, technical
expertise and experience of a deeper and more diverse workforce. The
combined company will also be better able to invest in and deploy new
technologies to improve service. Exelon and PSEG have strong and
improving records of safety, reliability and customer satisfaction, and
the merged company will build on that success. Moreover, the companies
will maintain their substantial presence in the cities and communities
they serve, and will sustain their record of significant charitable and
civic contributions and promotion of economic development. These
improvements will benefit customers and their communities in terms of
the quality and cost of service they receive.
o Consistent profitability and growth. With its combination of regulated
utility businesses and a large, unregulated, low-cost and low-emissions
generation business, the new company will provide investors with strong
and stable earnings and cash flow growth. About half of the combined
company's earnings and cash flow will come from the three regulated
utilities and half from the unregulated generation business. Operating
in multiple states and geographic regions will further diversify risks
and increase consistency of earnings, as will the larger, more diverse
generation platform. This balanced strategy will enable the new company
to prosper through changing energy markets and regulatory conditions.
The improved nuclear operations will result in greater and more
predictable output. Finally, the combined gas distribution businesses
will complement the electric side of the regulated utilities, further
balancing overall earnings and cash flow. PSEG's strategy to cease
additional capital investments in PSEG Energy Holdings and to pursue
sales of its international investments will be continued pending the
closing of the merger and thereafter.
o Continued financial strength. Increased scale and scope will also
strengthen the balance sheet of the combined company, improving
financial flexibility and better positioning it to meet the changing
landscape of the energy industry into the future. This sound financial
structure will provide the basis for continued investment in technology
and other drivers of long-term growth. Exelon and PSEG have informed
both Moody's and Standard & Poor's regarding today's announcement, and
each of the rating agencies will issue its own press release regarding
the merger. Exelon and PSEG believe, based on their own analysis, that
Exelon Electric & Gas and its subsidiaries will have solid investment
grade ratings following the closing.
o Substantial synergies. Exelon and PSEG expect synergies from the merger
to be approximately $400 million pre-tax in the first full year after
closing, growing to $500 million annually by the second year, excluding
out-of-pocket costs to achieve and transaction costs. Approximately 85%
of these synergies are cost related and 15% are based on increased
production at PSEG's nuclear plants. These savings and productivity
improvements are based
Page 4
on the proven capabilities of both companies, including implementing
certain practices that have been successful under The Exelon Way
transformation initiative. Savings are expected to come from the
elimination of duplicative activities; improved operating efficiencies
in nuclear and other generation operations; marketing and trading;
corporate and business services and transmission and distribution, and
supply chain benefits from improved sourcing. Approximately 70% of the
synergies will come from the unregulated businesses, with the remaining
30% from the regulated utilities. A portion of any job losses will be
offset by anticipated retirements and normal attrition. In addition,
Exelon Electric & Gas will reduce the impact of the merger on the
workforce through appropriate severance plans. Reductions due to the
merger are estimated at approximately 5% of the consolidated workforce
of approximately 28,000 employees. Approximately 38% of the post-merger
workforce will be located in New Jersey. All union contracts will be
honored.
o Improved nuclear operations. Given Exelon's strong, successful
performance in running the nation's largest nuclear fleet, the
companies expect to realize improved stability, higher capacity
utilization rates and lower costs from combining nuclear operations
under one management. The companies have entered into a Nuclear
Operating Services Contract ("NOSC") commencing on January 17, 2005
under which Exelon will provide personnel to work full time in the PSEG
nuclear organization. Under the agreement, Exelon will supply senior
personnel to oversee daily plant operations and to implement the Exelon
Nuclear Management Model, which defines proven practices that Exelon
has used to manage its successful nuclear performance improvement
program. This will assist PSEG in improving the operations of the Salem
nuclear facility, which is jointly owned with Exelon, and the adjacent
Hope Creek nuclear facility. PSEG will remain license holder and retain
responsibility for management oversight until the close of the merger,
and will have full authority with respect to marketing of its share of
the output from the facilities. This agreement should result in
benefits to both companies in 2005.
o Combined expertise in competitive markets. New Jersey, Pennsylvania and
Illinois all have passed legislation bringing competition to the
electric industry, and are in varying phases of the transition to full
competition. The regulatory knowledge and experience of each company
will enhance the merged company's ability to manage the transition to
competition for the benefit of both customers and shareholders. In
particular, PSEG's experience with the New Jersey auction process for
procurement of power for regulated utility customers will be an
important asset for ComEd as it nears the end of its transition period
in Illinois, where a similar auction process is expected. In addition,
Exelon and PSEG have been staunch advocates for competitive retail and
wholesale markets in electricity and gas. This shared vision will allow
the new company to be even more active in the promotion of competitive
markets and the development of energy-related services.
Page 5
Dividend Policy
It is anticipated that the new company's Board of Directors will maintain
Exelon's current dividend payout policy of 50% to 60% of earnings. The merger
agreement stipulates that at closing, after giving effect to the exchange ratio
in the merger, PSEG shareholders receive the same aggregate cash dividends on
the Exelon Electric & Gas shares that they were receiving on their position in
PSEG shares prior to the merger. In order to reflect a consistent payout,
assuming a 4-cent annual dividend increase by PSEG in 2005 to $2.24 per share,
Exelon would expect to raise its annual dividend from $1.60 to approximately
$1.83 per share in 2005 immediately prior to the close of the merger, assuming a
year-end 2005 close.
Headquarters
Following the merger, Exelon Electric & Gas will have its corporate headquarters
in Chicago, the current location of Exelon's headquarters, and the company's
energy trading operations and nuclear headquarters will be located in
Pennsylvania. The headquarters of the combined generation company will be
located in Newark, as will the PSE&G headquarters. This latter arrangement is
similar to Exelon's continued significant presence in Philadelphia following the
merger of Unicom Corporation (then parent company of ComEd) and PECO Energy in
2000.
Approvals and Timing
The merger is conditioned upon, among other things, the approval by shareholders
of both companies, antitrust clearance and a number of regulatory approvals or
reviews by federal and state energy authorities. These include the New Jersey
Board of Public Utilities, the Pennsylvania Public Utility Commission, the
Illinois Commerce Commission (notice filing only), the Federal Energy Regulatory
Commission (FERC), the Nuclear Regulatory Commission (NRC), the Securities and
Exchange Commission (SEC) and either the Department of Justice (DOJ) or the
Federal Trade Commission (FTC), depending upon which agency reviews the
transaction. The companies intend to register the new company as a holding
company with the SEC under the Public Utility Holding Company Act. The companies
anticipate that the regulatory approvals can be obtained within 12-15 months
and intend to seek shareholder approval in the second quarter of 2005.
The FERC and antitrust agency reviews will encompass a detailed review of the
effect of the merger on wholesale competition and regulation. The company will
work to secure necessary government approvals consistent with FERC's Merger
Policy Statement and the Hart-Scott-Rodino Antitrust Improvements Act.
Advisors
J.P. Morgan Securities Inc. and Lehman Brothers Inc. are serving as financial
advisors to Exelon, and Morgan Stanley is serving as financial advisor to PSEG.
Sidley Austin Brown & Wood LLP is serving as transaction counsel to Exelon, and
Pillsbury Winthrop LLP is serving as transaction counsel to PSEG. Skadden, Arps,
Slate, Meagher & Flom LLP is serving as regulatory counsel for Exelon, and
Steptoe & Johnson LLP is serving as regulatory counsel to PSEG.
Page 6
Investor/Media Meeting and Webcast
Exelon and PSEG will hold a teleconference and webcast for the investment
community and the media today at 1:00 PM EST. The dial in numbers for the call
will be (800) 289-0572 (domestic) or ( 913)-981-5543 (international). It can
also be accessed through both companies' websites at: www.exeloncorp.com and
www.pseg.com.
A telephonic replay of the call will be available until December 28, 2004. The
replay numbers are (888) 203-1112 and (719) 457-0820. The access code is 840128.
Exelon and PSEG will also host a press conference today, December 20, 2004 at
2:30 PM EST at PSEG's headquarters, located at 80 Park Plaza, Rooms 206-207,
Newark, NJ. The press conference will also be available by teleconference and
webcast. The dial in numbers for the press call will be (800) 406-5356
(domestic) or (913) 981-5572 (international). A replay of this call will be
available by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international)
access code: 175664.
In addition, a satellite feed of today's press conference will be available
simultaneously with the event. The details for the downlink are as follows and
the feed is free for unrestricted use:
Satellite - Galaxy 11
Band - Ku
Transponder - 15
Orbital Slot - 91 Degrees West
DL Frequency - 12003 MHz
Polarity - Horizontal
Audio Subcarrier - 6.2/6.8
===============================================================================
Corporate Profiles
Exelon is one of the nation's largest electric utilities with approximately 5.1
million customers and more than $15 billion in annual revenues. The company has
one of the industry's largest portfolios of electricity generation capacity,
with a nationwide reach and strong positions in the Midwest and Mid-Atlantic.
Exelon distributes electricity to approximately 5.1 million customers in
Illinois and Pennsylvania and gas to more than 460,000 customers in the
Philadelphia area. Exelon is headquartered in Chicago and trades on the NYSE
under the ticker EXC. For more information visit the company's website at
www.exeloncorp.com.
PSEG is a major integrated energy and generation company with more than $10
billion in annual revenues. It serves about 2 million electric and 1.6 million
gas customers in New Jersey. The company operates a large fleet of generating
stations with diverse fuel and dispatch characteristics, largely in the PJM
interchange. PSEG is headquartered in Newark, New Jersey and trades on the NYSE
under the ticker PEG. For more information, visit the company's website at
www.pseg.com
Page 7
Additional Information
This communication is not a solicitation of a proxy from any security holder of
Exelon or Public Service Enterprise Group Inc. 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, 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 07101-1171.
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 in the joint proxy
statement/prospectus and other relevant materials to be filed with the SEC when
they become available.
This document 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 document. 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 document.