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<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This presentation contains forward-looking statements within the meaning of
the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements with respect to revenues, earnings, performance,
strategies, prospects and other aspects of the businesses of FirstEnergy
Corp. and GPU, Inc. are based on current expectations that are subject to
risks and uncertainties. A number of factors could cause actual results or
outcomes to differ materially from those indicated by such forward-looking
statements. These factors include, but are not limited to, risks and
uncertainties set forth in FirstEnergy's and GPU's filings with the SEC,
including risks and uncertainties relating to: failure to obtain expected
synergies from the merger, delays in obtaining or adverse conditions
contained in any required regulatory approvals, changes in laws or
regulations, economic or weather conditions affecting future sales and
margins, changes in markets for energy services, changing energy market
prices, availability and pricing of fuel and other energy commodities,
legislative and regulatory changes (including revised environmental and
safety requirements), availability and cost of capital and other similar
factors. Readers are referred to FirstEnergy's and GPU's most recent
reports filed with the Securities and Exchange Commission.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, FirstEnergy Corp. and GPU, Inc.
will file a joint proxy statement/prospectus with the Securities and
Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE
JOINT PROXY STATEMENT / PROSPECTUS WHEN IT BECOMES AVAILABLE, BECAUSE IT
WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may
obtain a free copy of the joint proxy statement / prospectus (when
available) and other documents filed by FirstEnergy and GPU with the
Commission at the Commission's Web site at http://www.sec.gov. Free copies
of the joint proxy statement / prospectus, once available, and each
company's other filings with the Commission may also be obtained from the
respective companies. Free copies of FirstEnergy's filings may be obtained
by directing a request to FirstEnergy Corp., Investor Services, 76 S. Main
St., Akron, Ohio 44308-1890, Telephone: 1-800-736-3402. Free copies of GPU
filings may be obtained by directing a request to GPU, Inc., 300 Madison
Ave., Morristown, NJ 07962-1911, Telephone: 1-973-401-8204.
FirstEnergy, its directors, certain executive officers, and certain other
employees (Thomas M. Welsh, manager of Communications, and Kurt E. Turosky,
manager of Investor Relations) may be deemed under the rules of the
Commission to be "participants in the solicitation" of proxies from the
security holders of FirstEnergy in favor of the merger. FirstEnergy's
directors, and executive officers beneficially own, in the aggregate, less
than 1% of the outstanding shares of FirstEnergy common stock. Security
holders of FirstEnergy may obtain additional information regarding the
interests of the "participants in the solicitation" by reading the joint
proxy statement/prospectus relating to the merger when it becomes
available.
GPU, its directors (Theodore H. Black, Fred D. Hafer (Chairman; CEO and
President), Thomas B. Hagen, Robert Pokelwaldt, John M. Pietruski,
Catherine A. Rein, Bryan S. Townsend, Carlisle A.H. Trost, Kenneth L. Wolfe
and Patricia K. Woolf), certain executive officers (Ira H. Jolles (Senior
Vice President and General Counsel), Bruce L. Levy (Senior Vice President
and CFO) and Carole B. Snyder (Executive Vice President Corporate Affairs))
and certain other employees (Jeff Dennard (Director of Corporate
Communications), Joanne Barbieri (Manager of Investor Relations) and Ned
Raynolds (Manager of Financial Communications)) may be deemed under rules
of the commission to be "participants in the solicitation" of proxies from
the security holders of GPU in favor of the merger. GPU's directors, and
executive officers beneficially own, in the aggregate, less than 1% of the
outstanding shares of GPU common stock. Security holders of GPU may obtain
additional information regarding the interests of "participants in the
solicitation" by reading the joint proxy statement/prospectus relating to
the merger when it becomes available.
FIRSTENERGY AND GPU
ANALYST TELECONFERENCE CALL
August 8, 2000
10:30 a.m. EDT
CHAIRPERSON: Peter Burg, Chairman and CEO of FirstEnergy
OP = Operator PB = Peter Burg FH = Fred Hafer
RM = Richard Marsh TA = Tony Alexander BL = Bruce Levy
LV = Leila Vespoli TN = Tom Navin SP = Unidentified Speaker
OP: Good morning everyone and welcome to the FirstEnergy and GPU Analyst
Teleconference Call. With us today we have Peter Burg, Chairman and Chief
Executive Officer of FirstEnergy, Fred Hafer, Chairman, President, and
Chief Executive Officer of GPU, and Richard Marsh, Chief Financial Officer
of FirstEnergy. After the opening remarks, we will be taking questions. At
that time, if you have a question, you will need to press the "1" followed
by the "4" on your push-button phone. This call is being recorded and is
copyrighted material, therefore please note that it cannot be recorded,
transcribed or rebroadcast without the company's permission. Your
participation implies consent to our recording this call. If you do not
agree with these terms, simply drop off the line. Now I would like to turn
the conference over to Mr. Burg. Please go ahead, sir.
PETER BURG
Thank you, Operator. Good morning. This is Pete Burg. Thank you
very much for joining us. Obviously we're very excited about the
announcement that we've made this morning concerning the merger of
FirstEnergy and GPU and what it means to both companies, shareholders,
employees, customers, and the communities that we serve.
As the Operator said, before I begin, I'd just note that a number
of company people here with me. In particular, Rich Marsh, our Chief
Financial Officer, Tony Alexander, our President, Fred Hafer, CEO of GPU,
and Bruce Levy, their Chief Financial Officer are on their way. Did I say
Fred was... Fred is CEO, obviously, of GPU. Bruce is CFO. They are on their
way, and unfortunately they're not quite here yet. So we'll get started and
hopefully they'll be here before the end of the presentation.
I'd also note that this conference call may contain statements
that are considered forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. A complete forward-looking
statement is in our press release announcing this transaction and is
updated from time to time in the company's SEC filings.
This morning we announced that the Boards of Directors of
FirstEnergy and GPU unanimously approved the definitive merger agreement to
combine our two companies. Under the agreement FirstEnergy will acquire all
of the outstanding shares of GPU's common stock for a combination of cash
and stock. I'm very excited about our combination with GPU and the
opportunity that we think it'll bring to shareholders, employees, and
customers.
The consideration to be paid for GPU is approximately $4.5
billion. FirstEnergy will also assume approximately $7.4 billion of GPU's
debt in preferred stock. The combined company will have an equity value of
approximately $8.5 billion based upon both company's closing prices as of
last Friday. We will have the sixth largest customer base in the nation.
There may be a few of you who don't know FirstEnergy, so let me
give you some brief information about our company. We are a diversified
energy services holding company that was formed in 1997 as a result of a
merger of Ohio Edison and Centerior Energy. FirstEnergy companies provide
electricity and natural gas services and a wide array of energy-related
products and services to 2.2 million customers in Northern and Central Ohio
and Western Pennsylvania.
Through this combination with GPU, we will have the size, scale,
and scope to capitalize on opportunities we think in the rapidly changing
energy marketplace. Together with GPU FirstEnergy will serve approximately
4.3 million customers in Ohio, Pennsylvania, and New Jersey. The
combination of our two companies gives FirstEnergy the largest customer
base in the PJM power pool.
Joining our contiguous transmission and distribution systems
doubles FirstEnergy's customer base in the region that we've targeted for
growth. The combination of our facilities services portfolio, with GPU's
MYR subsidiary, will create the fourth largest mechanical contracting and
construction business in the nation with approximately $1 billion in annual
revenues.
Our merger also provides a number of other substantial strategic
benefits. It will provide both near and long-term financial growth. The
transaction is expected to be accretive to FirstEnergy's earnings per share
and cash flow immediately upon completion. This merger also offers
substantial synergies from combining our operations as well as the
opportunity to realize significant revenue enhancements. Over the long run,
we expect our earnings growth to accelerate from an estimate of about 5% on
a standalone basis to a 7% to 8% level on a combined basis.
A very important advantage of this transaction is that it will
provide FirstEnergy the opportunity to enhance the efficiency of its
generation portfolio. It provides a significant market for FirstEnergy's
generation capacity and may contribute to meeting GPU's provider of last
resort risk for electricity customers in Pennsylvania and New Jersey.
FirstEnergy's experience in managing power supply requirements
coupled with our planned addition of over 1,150 megawatts of peaking
generation and increased utilization of existing base load capacity will
help GPU decrease it's reliance on spot market purchases to meet their
obligations.
Lastly, we see significantly broadened opportunities in the
unregulated marketplace. Together we will increase market and growth
opportunities for FirstEnergy's natural gas resources and both companies'
mechanical contracting and construction, telecommunications, and e-commerce
resources.
For instance, our merger increases our ownership in two exciting
ventures already underway that we've talked to many of you about before.
America's fiber network, which is positioned to reach about 35% of the
national wholesale communications market, and Pantellos Corporation, which
will operate an Internet-based e-marketplace for the purchase of goods and
services between the energy industry and its suppliers.
Bringing together FirstEnergy and GPU will enable us to realize
our strategic vision of becoming really the premiere retail energy and
related services provider in our targeted 13 state region in the Northeast
quadrant of the nation. At the same time, the transaction provides
substantial economic synergies that will grow both our top and bottom
lines. By doubling the retail customer base and leveraging both companies'
relationships, we will be able to maximize the utilization of our existing
energy and related resources.
Those resources include electricity from our more than 12,000
megawatts of generating capacity, natural gas from our exploration and
production operations, fiber optic and long distance phone service from our
telecommunications operations, and a wide range of energy-related services
from our network of mechanical contracting and construction companies.
This merger will provide outstanding value to both companies'
shareholders. We expect near-term earnings and cash flow accretion,
long-term earnings growth potential, and greater diversity to earnings, and
a more competitive cost structure. Our combination will provide
shareholders and customers with more value and employees with better
opportunities than really either company could have achieved on a
standalone basis.
Now I turn it over to Rich Marsh to give you some of the details
with respect to the merger. Rich.
RICHARD MARSH
Thank you, Pete, and good morning everybody. Very much appreciate
you taking the time to be with us on this call this morning. I'm delighted
to briefly summarize the major terms of the transaction today and discuss
how these will produce value for our shareholders.
Under the agreement, GPU's shareholders will receive the
equivalent of $36.50 for each share of GPU common stock that they own -
payable in cash or in FirstEnergy common stock, so long as FirstEnergy's
stock price is between $24.24 and $29.63. Each GPU shareholder will be able
to elect the form of consideration they wish to receive, subject to
pro-ration, so that the aggregate consideration to all GPU's shareholders
will be 50% cash and 50% FirstEnergy common stock.
Each GPU share converted into FirstEnergy common stock will
receive not less than 1.2318 and not more than 1.5055 shares of FirstEnergy
common stock. This ratio will be determined by the average closing price of
FirstEnergy stock during the 20 day trading period ending on the sixth
trading day prior to the close of the merger. The stock portion of the
consideration is expected to be tax free to GPU shareholders. Each GPU
share may be converted into $36.50 of cash, also subject to pro-ration.
The transaction will be accounted for as a purchase. Based on
current book values, goodwill from the transaction is expected to be
approximately $1.1 billion. We anticipate that that amount will be
amortized over 40 years.
The companies expect cost savings from the merger to be
approximately $150 million per year. These savings will come from the
elimination of duplicative activities, improved operating efficiencies,
more efficient use of FirstEnergy's generation assets, and the combination
of the companies' work forces.
We will seek to minimize the effect of work force reductions
through hiring limits, attrition, and separation programs. All labor
agreements will be honored, and in addition we will continue ongoing
efforts to improve efficiencies and reduce costs under way at GPU.
The companies also expect to achieve revenue growth from
increased sales of electricity, natural gas, and telecommunications
services in unregulated markets, and also from the combination of our
mechanical contracting and construction operations. Our strategy will
remain firmly focused on our 13 state target region. In that regard, we
support GPU's continuing program to divest certain of its international
holdings.
The combined company expects to adopt FirstEnergy's current
annual dividend of $1.50 per share of common stock. In addition, both
companies plan to continue their existing programs to repurchase common
stock. To date, FirstEnergy has repurchase 9.9 million shares of the
authorized 15 million shares in a three-year program, which ends in 2001.
GPU has repurchased approximately $300 million worth of common stock in its
repurchase program of $350 million. Financing for the cash portion of the
transaction is expected to come from a combination of public debt and bank
financing.
The transaction is conditioned upon, among other things, the
approval of each company's shareholders and various regulatory agencies.
Any actions in Ohio, Pennsylvania, and New Jersey that may be needed to
complete the merger will be undertaken as required. FirstEnergy intends to
register as a holding company with the SEC under the Public Utilities
Holding Company Act of 1935, and we expect that the merger can be completed
within 12 months.
I'm very excited about the opportunities that this transaction
offers for our shareholders and look forward to telling you about these in
more detail soon. Right now, I'd like to turn the call back to Pete.
PB: Thanks, Rich. Just a couple more pleasantries here. In terms
of outlining for you some of the governance issues. Upon the closing, Fred
Hafer will become Chairman of FirstEnergy until his retirement at age 62. I
will become Vice Chairman and remain Chief Executive Officer of
FirstEnergy. I will also lead the merger integration team that will soon be
formed. The Board of Directors of the new FirstEnergy will consist of 10
members from FirstEnergy's Board and six from GPU's Board. After the
combination, FirstEnergy will remain headquartered in Akron, Ohio, but
certain functions will remain in New Jersey. It is anticipated that the
electric utility operating companies will retain their names and their
principle officers will remain at their current locations.
That's really a brief summary. I hope the information that we've
provided you today drives home the power of this combination. We think it
offers far greater growth and shareholder value than we could've achieved
on a standalone basis. We think it's a win-win for both companies. It
provides for near and long-term financial growth for a substantial cost
savings and we think for enhanced revenue opportunities. We've done this
before. We have every confidence that our management team's proven track
record and leadership will make our new merger really a great success.
Again, ladies and gentlemen, Fred is on his way. He's not here
yet, but we would like to, at this point in time, open the program for your
questions. Hopefully, if Fred arrives before we're done with our questions,
we can also ask him to say a few words. So we'll turn it over to your
questions now.
QUESTIONS AND ANSWERS
OP: Thank you. Ladies and gentlemen, we will now begin the question and
answer session. If you have a question, please press the "1" followed
by the "4" on your telephone. You will hear a three-tone prompt
acknowledging your request. If your question has been answered and you
wish to withdraw your polling request, you may do so by pressing the
"1" followed by the "3". If you are on a speaker-phone, please pick up
your handset before entering your request. One moment, please, for the
first question.
Your first question is from Avi Lavi from Sanford Bernstein.
Please proceed with your question.
AL: Yes, hi. Two questions. One is any thoughts about what you're going to
do with the international assets that GPU is holding?
RM: Hi, Avi, this is Rich.
AL: Hi Rich.
RM: Yes. You know, as I mentioned, our strategic focus will remain on the
13 state target region that we've identified in the past. So we do
support that GPU's ongoing program to sell certain of its
international assets. So I would expect that that program will
continue based on market conditions.
PB: They also have some very positive assets that are contributing
substantially to their earnings. They are not necessarily a part of
their plans for divestiture at this point in time.
AL: So you might keep some of the international assets.
RM: That's a possibility, Avi, yes.
AL: So just a technical question on debt. Is the goodwill of $1.1 billion,
is that based on the current book value of these assets on GPU's books
or based on your estimate of market value?
RM: That's based on current book value, Avi. It is possible that we would
write other assets down under purchase accounting. Obviously there's
two parts to that, though. The depreciation expense from the lower
book value would also result(?), and we feel that those two entries
would largely eliminate each other. So it shouldn't have an impact on
earnings if we do end up writing down more than that $1.1 billion
based on current book values.
AL: Okay. The other question is what happens if FirstEnergy stock goes
above or beyond the collar that you've put on it?
RM: This is a fixed price transaction with a 10% collar, Avi, so to the
degree that stock price goes down. For instance, if it went down 10%
to the bottom range of the collar or up 10%, we would issue 10% more
or fewer shares. To the degree it goes beyond that collar, it would
stay at the bounds, at the +10% or the -10% number of shares
outstanding. There is no provision in the transaction if the stock
does go below the 10% level, there is no provision for the transaction
not to occur, however.
AL: Is there a breakup fee?
RM: There is a breakup fee, yes.
AL: Can we know the number?
RM: I believe the number is $145 million plus expenses.
AL: Okay, thank you.
RM: Thanks, Avi.
OP: Your next question is from Paul Fremont from Jeffries & Company.
Please proceed with your question.
PF: Yeah, first of all, congratulations on the deal. Second, can you
describe where the savings are going to come from, both in terms of
regulated and non-regulated businesses? Can you share with us some of
the assumptions about whether there would be any sharing of the
portion of savings that are attributed to the regulated side? Can you
give us a sense in terms of the breakdown between labor and other
sources as to where those savings are coming from?
PB: Yeah, Paul, we have not yet done a detailed analysis of all the
savings opportunities. We'll be putting together a team very shortly.
However, we've really looked at what other transactions have been able
to achieve, and also from our experience and our prior merger.
Therefore, we think conservatively estimated that we're looking at
roughly 5% synergies with respect to non-generation O&M costs. Again,
we have not allocated those dollars, but I think you can look at other
transactions to estimate how they might come out.
PF: You mean in terms of between regulated and non-regulated or between
some sharing assumption between shareholders and customers?
PB: Well, actually I was thinking of neither. I was thinking of the
allocation between O&M and capital.
PF: Oh, okay.
PB: That was what I was speaking of. Again, we haven't gotten into the
actual synergies between regulated and non-regulated. Obviously many
of the costs will probably be the so-called shared services kinds of
costs that will be allocated between the two entities.
PF: So in modeling this, should we assume that most of those savings flow
through the shareholder or should we assume some sharing is likely to
be imposed in the regulatory jurisdictions?
RM: I think...
PB: Go ahead, Rich.
RM: I'm sorry, Peter. I was just going to say, Paul, I think most people
for modeling purposes assume a convention that there is some sort of
sharing obviously. You know, we don't know how that will actually be.
But I would suggest to use the typical sort of conventions that people
use for this purpose, just with the caveat that obviously sharing
occurs on the regulated side as opposed to the non-regulated side.
PF: Alright. At this point, you don't have a breakout between regulated
versus non-regulated.
RM: As Pete mentioned, we haven't completed the detailed synergies study
at this point.
PF: Okay.
RM: Thank you, Paul.
OP: Your next question is from Kit Konolige from Morgan Stanley. Please
proceed with your question.
KK: Hi. Good morning, guys, congratulations.
RM: Thank you, Kit.
KK: I was wondering if you could give us a little more detail on your
thinking about how your generation position, which is long and
under-utilized in certain aspects, fits with the short position that
GPU created for itself?
RM: Thank you, Kit. That's really one of the exciting parts of this
transaction. As you mentioned, the utilization of our generation
fleet, particular the fossil units, has been impacted by the improved
reliability of the nuclear units. During off-peak periods of time, we
will now have the ability to generate and sell more power to the GPU
customer base.
This will allow these units to operate more efficiently, and
allow them operate as base load units as opposed to low-filing or
cycling units, which will reduce our O&M costs, makes these units more
thermally efficient, and allow us to capture more generation revenues
as well. So there's a number of benefits to this. Obviously this also
helps to contribute to mitigating their net short position.
We also have some new generation assets that will be coming
online over the next several years, about a little over 1,100
megawatts of peaking generation that will be coming on between this
summer and the year 2003. Those generating assets as well will be
available to help us meet our combined customer load in the service
territories.
KK: Thank you.
RM: Thank you.
OP: Your next question is from Karen Roth from UBS Warburg. Please proceed
with your question.
KR: Hi. Can you discuss the corporate structure a little bit further?
Specifically, will GPU be a subsidiary of FirstEnergy with its
remaining subs intact?
RM: GPU will be merged into FirstEnergy. We expect that the GPU operating
companies will remain in their present headquarter locations, will
retain their corporate identity as a FirstEnergy company.
KR: Okay, so all of this present subsidiaries of GPU will become
subsidiaries of FirstEnergy.
RM: Yes, that is correct, Karen.
KR: Okay. Do you have a breakdown of your customers in terms of electric
and gas?
RM: Not at my fingertips, but I'd be glad to get back to you with that.
KR: Okay, thanks.
PB: We have, as I recall... You know, most of our gas customers are large
commercial and industrial customers, and it's my recollection we have
approximately 44,000 natural gas customers. Obviously the bulk of our
customers here will be electric customers of some 4.3 million plus.
However, we hope to grow that gas company number.
KR: Okay, thanks.
PB: Gas customer number, I should say.
OP: Your next question is from Doug Preiser from McDonald Investment.
Please proceed with your question.
DP: Good morning, Pete, it's Doug Preiser.
PB: Yes, Doug.
DP: A couple of questions. First of all, I'd like to go back to the
foreign divestiture question. You mentioned that you would keep assets
that are delivering excellent earnings. Am I to assume then that
Midlands would be a keeper rather than something that you would look
to sell?
PB: You know, at this point in time, it's very early in the process. What
were saying is that we fully support GPU's strategy that they have
underway with respect to certain divestitures of those assets. At this
point in time, we don't see any reason to make any real comment about
Midlands. They're earning money, they're contributing a large segment
to GPU's earnings, and we'll just have to look at as we go forward.
DP: Okay. Then getting back to Rich's answer on the provider of last
resort issue, he mentioned that the improved new performance has
helped free-up coal availability. Could you give us some round numbers
around that? You know, how many megawatts do you think that you have
available on, Pete, to help handle the polar risk outside of what the
new generation's coming on?
RM: I can try to put some bounds around that, Doug. I mean over the last
year, nuclear's produced about 40% of our total generation. That
compares with about 34% in the prior year. It only makes up 31% of our
total capacity, so it's putting out more output than is proportional.
Right now, our fossil fleet has been running at capacity
utilization rates probably around the 55% to 60% range. Obviously the
answer to your question will depend on how high we can raise that.
Certainly we would hope over the next several years we can move that
up towards the 70% range and thus free up some significant more
megawatts that we'll be able to sell into the Pennsylvania
marketplace.
PB: And a rough estimate would be several hundred megawatts there, as I
recall.
RM: Yes, on-peak.
PB: Right.
DP: Several hundred?
PB: Yes.
RM: Several hundred on-peak and more than that off-peak.
DP: Okay. Then could you give us what your assumptions are on the debt
costs from an interest rate perspective and whether that's floating
rate initially, fixed? I mean just give us some structure on the debt.
RM: Yeah, we took a pretty simple approach to that, Doug. We assumed an
8-3/4% fixed rate for our internal modeling purposes.
DP: But that's not where you'll end up initially, though, correct? I mean
you'll do that with short-term stuff.
RM: Yeah, that's very likely.
[overtalking]
DP: ... into over time.
RM: I'm sorry, Doug.
DP: It pays into that rate over time.
RM: Yeah, I mean exactly how we do this is going to be a little bit of a
tactical decision based on market conditions at that point in time.
But for our modeling purposes, we've just been assuming a
straightforward 8-3/4% fixed debt rate.
DP: Okay. Just finally, based on initial numbers, let's just assume that
the first full year of the merger is 2002, would you have a problem if
we said that it was at least 3% to 5% accretive in the first year to
what's FE's standalone earnings would be?
RM: No, I don't have a problem with that, Doug.
DP: Okay. Thank you very much.
RM: Thank you.
OP: Your next question is from Greg Orrill from Merrill Lynch. Please
proceed with your question.
SF: Yeah. Hi, gentlemen, it's Steve Fleischman.
RM: Oh, hey, Steve.
SF: Hi. A couple of questions. First, could you give us some sense of the
capital structure of the new company at closing of the merger?
RM: Sure. Initially at closing we are picking up about just slightly over
$2 billion of acquisition debt. So the capital structure will be about
65%-66% debt as a percent of total capital at closing. We would
anticipate, Steve, that that would be reduced relatively quickly,
probably with debt redemptions averaging in excess of $600 million
over the first two or three years. So that we would expect by the end
of the third year post-merger, we would be at something closer to 55%
to 56% to 57% debt.
SF: That's $600 million per year of debt redemptions?
RM: That's an average over that time span.
SF: Okay. Second question is with respect to this issue about managing the
generation better, just so I understand. At peak you have limited
capability to sell excess into GPU?
RM: Yes, that's true.
SF: Would it be so most of this is kind of off-peak or area where
hopefully you'll more opportunity to sell into I guess a higher priced
market?
RM: It'll also to, yeah, use existing assets more efficiently. We'll be
able to take the assets that we have now, run them more, run them
better, and sell that and capture that incremental margin, which(?)...
[overtalking]
SF: I mean are there any kind of either transmission... Could you go into
any transmission issues between the two, as well as any environmental
issues about running your plants at a higher capacity factor?
RM: I'm certainly not a transmission guru, but those folks here who are,
Steve, tell me that that doesn't present any problems that are
insurmountable as far as getting that generation to the East.
PB: In addition, Steve, one of the big things here is that we do have
diversity, both in terms of geography, customers, and often times
weather. In fact, some of the peaking capacity that we'll be putting
on we do think would be available to meet some of their peaks at times
when probably the Western part of our territory at that point in time
may not need it as badly.
SF: Okay.
PB: Again, we're looking to put on some combustion turbines, some of which
will be available to go into that market relatively soon.
SF: Okay. I'm just trying to understand why it would've been different if
this is supposed to be an open access market, why it would've been
different as a merged company than standalone pursuing the same
strategy.
RM: I guess because you have...
[overtalking]
SF: I thought the issue was there was a lot of constraints between ECAR
and PJM.
RM: In some areas there are. You know, we are interconnected in Northwest
Pennsylvania. I think the big issue here, Steve, is that we will
"own(?) the customer." Those customers will be FE customers and that
gives us a lot more options for how we source the generation.
SF: Okay.
PB: Again, I mean we're not saying that we're going to supply all
capacity. Some capacity will be managed just as it's managed now.
It'll come from the sources it's coming from now or from the areas
that it's coming from now. We may in fact try to sight some of our new
combustion turbines within that market. Again, at various periods in
time, we think that the transmission system can accommodate the kinds
of power that would be sold into that marketplace.
SF: Okay. One last question on regulatory approvals. We've had I guess one
deal recently go through Pennsylvania. There hasn't been any deals I
think recently in Ohio or New Jersey. Just curious since this got
pre-leaked, what the initial political regulatory reaction has been
and what, if any, specific guidelines there might be under the dereg
laws on merger approvals in those states.
PB: I'm not sure that I've seen any official comments other than there was
a quote by the Chairman of the Ohio Commission in one of our papers
saying it seemed reasonable to him. I'm not sure if we've seen really
any other quotes in the newspapers from any elected officials or
regulators. We're very hopeful that in terms of providing additional
reliability to customers, making us a stronger company. The two of us
together, we think that should be a positive for both regulators as
well as legislators, and ultimately for customers. But we don't have
any specifics on that at this point in time.
SF: Thank you.
RM: Thanks, Steve.
OP: Your next question is from Mark Luftig from WH Reaves. Please proceed
with your question.
ML: Hi. Two questions, please. One, do you need Ohio approval for the
merger? Second, are there any plans to do joint ventures of the
non-regulated pieces before the merger is completed?
PB: Well, to the second question, I can't say that we've gotten into that
yet, Doug. In many ways we are doing joint ventures with respect to
e-commerce activities, telecommunications activities. Those are forms
of joint ventures. But beyond that, we really haven't gotten into the
specifics.
With respect to approvals, particularly as you ask about in Ohio,
I'll ask our General Counsel, Leila Vespoli, who is with us to comment
on that.
LV: No, I don't believe the transaction of structure would require
approval of the Commission. However, in some prior transactions where
jurisdiction has been questionable, parties have brought it to the
Commission in abundance(?) of caution. So as to whether there will be
any type of filing made is still an open question.
ML: Okay.
RM: Thanks, Mark.
OP: Your next question is from Dan Poole from Matcity Investments. Please
proceed with your question.
DP: Hi guys, congratulations. I think everything's been answered, but,
Pete, maybe if you could elaborate on the interconnectability of the
two systems. Sort of make us feel good that there's absolutely no
transmission issues between the two areas. Are you physically
interconnected to them?
PB: Yeah, you know, you can never say never to anything. All I can tell
you is we've done due diligence, we've talked to our transmission
people, we are definitely interconnected directly with GPU in
Northwestern Pennsylvania. From what we can tell, the amount of power
that we'll need to transmit to the East, there seems to be adequate
transmission capability at this point in time from what we can gather.
DP: Super. Thanks.
RM: Thank you, Dan.
OP: Your next question is from David Frank from Zimmer Lucas Partners.
Please proceed with your question.
DF: Yeah, hi. Good morning, guys, congratulations.
PB: Thank you.
RM: Thanks, David.
DF: I just want to ask you, are there any walk-away provisions in this
merger?
PB: Walk-away provisions? In I guess traditional kinds of definitions of
that.
LV: Speaking of the termination fees, yes, there are two specific
termination fees. There's a termination fee of $25 million with
respect to a non-curable(?) breach, and the one Rich alluded to
earlier, the $145 million, the more standard typical termination fee.
DF: Okay. What should we use for a targeted closing date for the merger?
RM: Our expectation and our hope, David, is that we can get this deal done
in about 12 months.
DF: 12 months, okay. Rich, you talked about $1.1 billion of goodwill
earlier.
RM: Yes, David.
DF: Is that all from paying above book value for GPU? Are you including
the write-down of maybe some other assets as part of the purchase
accounting and write-up of goodwill in that number?
RM: There was a little bit of that, David. It's from writing down assets.
Most of it results from existing book value, yes, paying above book
value.
DF: Do you anticipate taking in further write-downs?
RM: That's possibility. It depends on what assets they may divest between
now and closing, but that's certainly not out of the realm of
possibility.
DF: Just one more question. What are FE's current shares outstanding and
how many shares do you plan on repurchasing prior to the merger
closing?
RM: We've already repurchased about 9.9 million out of authorization of 15
million. That'll somewhat be a tactical decision. We've been
accelerating the program as you know, David. So over the next year,
which is the expected timeframe, I would anticipate we would have most
of that program completed.
As far as the exact number of shares that we have outstanding,
does somebody have...
SP: 229.
RM: About 229 million.
DF: 229 [million]?
RM: Yes.
DF: Thank you.
RM: Thank you, David.
OP: Your next question is from David Reynolds from Morgan Stanley. Please
proceed with your question.
DR: Good morning, gentlemen, congratulations.
RM: Thank you, David.
DR: Just a couple of quick questions. They've pretty much already been
asked, but I just want to make sure I have the details correct. It
sounds like Ohio doesn't have explicit authority to approve the
merger, but you're possibly anticipating approaching them just to be
safe. Is that the same situation with Pennsylvania and New Jersey?
What are your expectations for what you're required to do there?
RM: I'm sorry...
PB: The question had to do with...I'm sorry. We just had some very nice
guests arrive in the room. So let me restate the question, so everyone
can hear it here. The question was we've talked about Ohio approvals,
what do we need from either Pennsylvania or New Jersey in terms of
regulatory approvals? Leila.
LV: We will need approvals there.
DR: Okay. So you'll have to make filings for those states.
PB: Correct.
RM: That's right, David.
DR: Okay. Last question, just real quickly. With regard to the improved
generation performance and possibly higher load factors, is the
benefit really coming from the difference between the whole sale
market rates that you have been receiving and the retail rates that
you're going to get from GPU's default service? I mean surely with
improving performance that we've seen over several quarters, you've
been generating the extra output and selling it into the wholesale
market. So is the upside because of a better revenue number that
you're going to get from the GPU default service numbers?
RM: I mean that's part of it, David. There's several elements to the
answer I guess. Number one, is that it does allow us to better utilize
the existing resources we have, generate more kilowatt hours out of
the same generation base because we'll have a larger customer base to
spread them over. Also get some very attractive O&M savings and
efficiencies because these units will be more thermally efficient.
These units were designed to be operated as base load units, not to be
cycled up and down or to be load following(?). Getting them up to
speed and temperature and operating them that way makes them more
efficient, makes O&M costs less, and improves their reliability. So
there's a number of elements to that answer.
DR: Right. I guess the question I'm trying to get to, Richard, is in terms
of the extra kilowatt hours, weren't these kilowatt hours that you
would have been producing and selling into the wholesale market
anyway? Instead you just have an embedded short position or embedded
customer base to move them to.
RM: No, I wouldn't agree with that, David. They were kilowatts that
weren't being generated.
PB: We just think they can be generated now, at a profit.
DR: Okay.
PB: Hey, before we lose some of you. I know we've been going here for 45
minutes or so, but I'm pleased to say that Bruce Levy, the Chief
Financial Officer of GPU, has arrived as has their Chairman,
President, and CEO of Fred Hafer. I would just ask Fred, we kind of
truncated some of the things he was going to say already, but just ask
him if he might like to say a few words. And if you might have a
question or two for him that would be great at this point in time.
Fred.
FH: Okay. Thank you. Thank you very much, Pete, and thank you all for your
patience and your endurance as we tried to get here. I guess it's
needless to say, this is a very exciting day for me personally and for
the entire GPU organization. We're extremely pleased to have been able
to find a partner such as a quality organization like FirstEnergy.
I think that the combination gives our shareholders - GPU
shareholders - obviously a meaningful premium over their stock price.
But maybe even more importantly, it provides GPU shareholders with a
significant value in the near-term and also an opportunity to
participate in what we believe will be some significant upside
potential of what is ...[tape skips]... we also believe to be a
compelling transaction. It gives our employees an opportunity to
become part of a larger, more diversified, exciting organization.
I'm particularly proud to say that FirstEnergy, as I've come to
know them, are like GPU, is a company that clearly takes an active
role in all the communities in which it's located and which it serves.
That is something that's been very important to GPU as well.
Some might question how we eventually arrived at this decision,
although others I guess might view it and understand that it was
previous obvious and compelling. It certainly should come as no
surprise to anyone that I, like a number of you, who are on this phone
call have been, for some time, very disappointed and dissatisfied with
GPU's stock performance. We have been looking for strategic ways to
enhance our value and to improve that.
For some time now, our Board has been working and studying
strategic options that would be available to the company, and came to
the conclusion that the best way to serve our shareholders and indeed
all of our stakeholders in this process, was to investigate what
opportunities might be out there for a partnership or a sale of the
company. We've been involved in what is a pretty rigorous process,
looking for the right partner, and again, as I said at the very
outset, I'm just delighted to be able to announce that, in my view, we
found not only the right partner, but a perfect partner for GPU in
FirstEnergy.
Pete and I have not been long-time friends, but we've known each
other socially and professionally for some time. I've enjoyed that
relationship. We're therefore kind of friends as well as neighbors -
neighbors as far as our companies go.
For those of you who aren't maybe as familiar with GPU as you
might be with FirstEnergy, we are a public utility holding company
that has been in business now for almost 55 years. Our core business
is the electric delivery business in the United States. We serve
dominantly in Pennsylvania and New Jersey, covering about half the
land area of those two states, and delivering electricity to about 2
million customers.
We also have substantial holdings internationally, as some of the
questions indicate you're already aware, including a distribution
company in the U.K. The Midlands Electric Company, which itself serves
about 2 million customers. A gas transmission company in Australia and
several independent power projects, both in the U.S. as well as around
the world. We also have an electric distribution holding company in
Argentina.
Other than the distribution companies in South America and the
U.K., we have been involved in a process of trying to divest of those.
As you heard earlier from Pete, FirstEnergy is aware of that and
supports our efforts as we go forward through the transition phase.
We have been very focused on trying to build a non-regulated
component of the GPU systems, specifically focusing on construction
activities, especially construction utility construction and piping,
as well as the new kind of emerging field of telecommunications and
various facets of that. Those businesses fit perfectly with the
efforts and the focus that FirstEnergy has.
Our access to FirstEnergy's generation, which has been the
subject of a number of questions most recently, and its expertise that
FirstEnergy has in providing cost-effective supply options in
competitive markets, I believe is going to be a tremendous advantage
to GPU in our efforts to accommodate customers who continue to rely on
us not only for the delivery of their electricity, but for the supply
of that electricity. Through FirstEnergy, we are going to be able to
continue to play an important role in the economic health and the
well-being of New Jersey and Pennsylvania, both as a significant,
continuing employer and as just a responsible corporate citizen. So we
will continue the strong traditions that both of our companies have
built up for supporting local communities through our charitable
contributions, through extensive volunteerism and volunteer programs
of our employees.
In closing, let me just say if it isn't obvious with what I've
said already, let me reiterate that in my view FirstEnergy is clearly
the right fit for GPU in terms of our strategic objectives, in terms
of our cultures, in terms of our core values, in terms of our
geography and the locations of our systems and the businesses in which
we're involved. I'm extremely optimistic and excited and proud that
we're able to put these two great companies together. Thank you, Pete.
PB: Thank you, Fred, very good. We understand that... We appreciate Fred's
comments and glad that he and Bruce could both get here. We understand
there are a few more questions on the line, so why don't we take a few
more before we cut it off.
OP: Thank you. Your next question is from James Vhalacker from Silcap.
Please proceed with your question.
JV: Good morning.
PB: Hey, Jim.
JV: Just a quick question regarding the future capex. I guess now that
Fred's there also, could you give us sort of an idea of what the
breakdown is between FirstEnergy and GPU and also break it down
between sort of maintenance and growth capital?
RM: In general, I can give you sort of an overview, James. I mean
basically the domestic utilities we would expect to have capital
expenditures, you know, generally in say in the high three hundreds to
low four hundred million per year kind of range. Okay? Total capex for
the companies combined would probably be in the $800 million plus
range over the coming years.
JV: Okay, great.
FH?: Obviously that's another area that we'd like to attack with our
transition team, to see whether or not we can find some savings maybe
on systems if not facilities, if you will, that we can save on as we
go forward here with respect to synergies on capital items as well.
JV: Thank you very much.
RM: Thanks.
OP: Your next question is from Ed Kressler from Angelo Gordon. Please
proceed with your question.
EK: Good morning and congratulations. Real quickly, just some housekeeping
details. Is the deal conditioned in any way on financing?
RM: No, it's not, Ed.
EK: It's not, great. Is the deal additionally conditioned in any way on
any of the GPU planned asset divestitures?
RM: It is not, Ed.
EK: It's not, great. Can you just talk a little bit about the nature of
the FCC approvals that are going to be required?
RM: Certainly. We might ask Leila Vespoli to answer that question.
PB: SEC approvals, is that the question?
EK: Yes...
PB: Or did you say FCC?
EK: I said FCC.
PB: FCC.
LV: FCC. There will be approvals required as there was with the merger of
Ohio _________ and Centerior...
SP: Divestitures.
LV: FCC?
SP: Yes, FCC.
[overtalking]
LV: Most license communications, a transfer of licenses in that regard?
EK: Yes.
LV: Yes, we will need approval for that.
PB?: But we don't really see that as a significant item, however.
LV: No.
EK: Okay, but...
LV: No, not at all.
EK: It primarily relates to transfer of licenses held at GPU?
RM: That's right, Ed.
LV: As I understand it right now, yes.
EK: Okay, great. Just two more quick ones. In terms of... This was already
asked, but I don't think the question was understood. Is there any
walk-away price at which either if the price of FirstEnergy or GPU, in
terms of stock price, should move beyond a certain point that either
party has the option to walk away from the deal?
RM: There is not.
EK: There is not, great. And then the $145 million break free, is that
payable only in the event of a superior proposal for GPU or is it
payable both ways?
RM: It's payable...
[End of side 1]
[Beginning of side 2]
OP: ... Credit Suisse First Boston. Please proceed with your question.
PP: Hi, how's it going?
RM: Okay, Paul.
PP: I wanted to ask you some balance sheet questions here. You mentioned
65% to 66% debt at the close of the merger. Does that conclude the
lease obligation bonds?
RM: Yes it does, Paul.
PP: Okay. And then the second part was, of the total amount of equity that
you have with the company, what would be the total dollar value,
roughly speaking, of goodwill?
RM: Goodwill we're saying is about $1.1 billion.
[overtalking]
PP: But don't you also have some goodwill from the previous transaction?
You've got about $2 billion I think at FirstEnergy. I was wondering
what it was at GPU. Is it like $3...
RM: It would be about $3 billion in aggregate, Paul.
PP: Okay. And that would be out of how much of total equity?
RM: $9 billion.
PP: Out of $9 billion of total equity.
RM: Correct.
PP: Okay. And then I guess for this question that we're coming up with,
that people keep coming back to, is the GPU store(?) position how this
aids GPU's store position. Right now, GPU can buy power in the
off-peak market, isn't that correct? And you guys can sell into the
wholesale off-peak market? I guess what we're trying to figure out or
what some of the questions seem to be aimed at is what exactly is the
synergy, if you guys are able to currently sell into the off-peak
market, you know, to the wholesale market and they're able to buy in
the wholesale market, where is the synergy that's associated with
that? If right now it seems like you guys are able to do this without
the transaction.
RM: Let me take another stab at this. I tried it a couple of times.
Apparently I haven't gotten the message across, Paul. It really comes
to our relationship with the customers that we will have. We will not
have more customers to sell to. We will be able to run our fossil
generation more and generate more than we have in the past, which will
allow us to not only get incremental margin and revenues, but also to
get some O&M efficiencies from running those units more than they are
running right now.
PP: But couldn't you just buy the power in the wholesale market to serve
those customers? I mean that's what I guess is confusing us. I mean
now you've got access to these customers, can't you just simply buy
the power in the wholesale market to serve them? I mean why do you now
generate it I guess is what's sort of confusing.
RM: To the degree that it's more cost effective, we generate rather than
buy. But could we buy in the wholesale market? Yes, obviously.
PP: So you don't currently sell into the wholesale because I guess the
price doesn't support it. I guess what I'm wondering is why would it
be that you can now... Do you see what I'm saying? Why would you now
sell... Why would you now run your plant? Are you concerned(?) that
the price of power would go up in the wholesale market? Do you see
what I'm saying? I mean half a dozen, six of the other so to speak, is
what it seems like.
RM: Okay. Tom Navin, our Treasurer, Paul, had a comment that he wanted to
make.
TM: [harder to hear, since further away from microphone] Paul, one of the
benefits that we see of the combination is that it really enhances the
flexibility of how we generate and when we generate. If we were to say
try and buy from the _________ market or try buy it forward(?), we
would probably be buying it higher price than having the additional
generations, especially the ability to run the generation at night to
serve the customers that we will then own gives us that flexibility.
We'll be able to run the units at a higher capacity factor during
the off-peak night time hours and then be available to make peak on
the next day with those same units. Rather than how we run those units
today on a standalone basis, which is where we're cycling(?) those
major units that aren't running base loads down to very low levels or
maybe off at night.
PP: Because now you've got customers who are willing to pay more at
off-peak, is that what the idea is?
TN: Well, we'll just have customers that we can use during those off-peak
hours to run our generation units at a higher level. Right now, we
don't have those customers to serve during those off-peak hours, so we
have to cycle those units down to lower levels.
PP: And how does GPU serve those customers at off-peak hours? They buy the
power in the wholesale market, right?
RM: Yes.
PB?: Or they have contracts now, I...
RM: Right.
PB?: The other thing that we can also point out here is that it's almost
like a... I don't want to use the term vicious circle. It's a positive
circle in that the more we produce, the lower our costs per unit are
and the more competitive we become. And also the points that Tom made
about efficiencies of not cycling plants, running them more full-load,
just brings down the overall costs and we think will make us much more
efficient overall than we otherwise would've been.
PP: Okay. Thank you very much.
RM: Thanks, Paul.
PB?: We also wanted to make a...I think Leila wanted to make one clarifying
point.
LV: Yes, if I could. When it was answered earlier to the question of
whether there was a bilateral termination fee and it was indicated
that it was, that is true for the $25 million I had mentioned. With
regard to the $145 million, that would just be an amount that would be
payable to FirstEnergy.
PB: Okay, we had...If there is one more question, we'd like to take that
now and then we'll cut it off.
OP: Your final question is from Dan Jenkins from State of Wisconsin
Investment Board. Please proceed with your question.
RM: Hello, Dan.
DJ: Hi. Congratulations on the deal. I had a couple of things. First of
all, I was wondering if you have the dollar amount of the assets that
GPU still has to divest.
RM: We don't have a specific dollar amount. I think exactly what they do
with some of these international assets depends on market conditions.
So exactly what may be sold and when they be sold will in part be a
reflection of market conditions in general. So I don't think I can
give you a definitive answer on that.
PB?: Maybe Bruce could a little color to that, though.
BL: The assets that we're currently selling fall into three categories.
The gas distribution or gas transmission business in Australia, which
has an estimated value of about $850 million to $900 million
Australian dollars. We would net from that about $100 million U.S.
after repayment of debt.
The IPP assets in the U.S. have an estimated value in... We're in
the middle of a bid process, but it's greater than book value and the
book value is about $130 million. The bids will be above that. But
that bid process won't be completed until later in the third quarter.
The international IPPs, which will be sold over the next six
months to a year, probably have a combined value of about $200 million
U.S. Some in South America and the rest in Europe and in Asia.
So those are the total proceeds we could expect to get from those
things, but we'll be selling them over the next 12 months.
PB?: Thank you, Bruce.
DJ: Do you anticipate that those proceeds will be used to reduce the
amount of debt financing you'll need for the cash portion of the deal?
BL: Well, prior to closing we'll use that proceed to pay off the debt at
GPU. That'll lower overall debt in the combined company.
FH: You get to the same point.
PB: Thank you, Bruce. Thank you, Fred. I'm glad you both were able to get
here. Again, we want to thank all of you on the line for joining this
morning. As I said earlier, our merger with GPU we think really is a
truly compelling story. By combining our two companies, FirstEnergy
will realize improved financials we think. We'll become the premiere
supplier in our 13 state region that we have targeted for growth. The
merger enhances our generation utilization, it may well contribute to
meeting GPU supply risks. It broadens our unregulated market
opportunities. There's just more customers out there available to us.
We have every confidence that our proven management team will provide
the leadership for this company going forward.
In addition, we look forward to seeing many of you and telling
you more about our story tomorrow. We're going to have an analyst
meeting in New York beginning at 8:15 at the Essex House at 160
Central Park South. We thank you all for joining us today. Good day.
OP: Ladies and gentlemen, that does conclude your conference call for
today. We thank you for participating and please disconnect your
lines.
[End of Recording]
<PAGE>
FirstEnergy(R) & GPU(SM)
The Premier
Regional Supplier of
Energy and Related Services
August 9, 2000
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This presentation contains forward-looking statements within the meaning of the
"safe harbor" provisions of the United States Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
with respect to revenues, earnings, performance, strategies, prospects and other
aspects of the businesses of FirstEnergy Corp. and GPU, Inc. are based on
current expectations that are subject to risks and uncertainties. A number of
factors could cause actual results or outcomes to differ materially from those
indicated by such forward-looking statements. These factors include, but are not
limited to, risks and uncertainties set forth in FirstEnergy's and GPU's filings
with the SEC, including risks and uncertainties relating to: failure to obtain
expected synergies from the merger, delays in obtaining or adverse conditions
contained in any required regulatory approvals, changes in laws or regulations,
economic or weather conditions affecting future sales and margins, changes in
markets for energy services, changing energy market prices, availability and
pricing of fuel and other energy commodities, legislative and regulatory changes
(including revised environmental and safety requirements), availability and cost
of capital and other similar factors. Readers are referred to FirstEnergy's and
GPU's most recent reports filed with the Securities and Exchange Commission.
------------ -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
------------ -------------------------------- -----------------
<PAGE>
Pete Burg
Chairman and CEO
FirstEnergy Corp.
------------ -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
------------ -------------------------------- -----------------
<PAGE>
COMMITMENT TO SHAREHOLDER VALUE
- Expected to be accretive to earnings and cash flow
- Enhanced revenue potential
- Substantial cost-reduction opportunities
- Accelerated earnings growth target of 7% - 8%
- Expect to maintain FE's current $1.50 dividend
------------ -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
------------ -------------------------------- -----------------
<PAGE>
STRATEGIC BENEFITS OF TRANSACTION
CREATES PREMIER SUPPLIER IN 13-STATE REGION
- Scope and scale
- 6th largest customer base nationally
- Broadened unregulated market opportunities
- Helps address GPU's provider of last resort obligation
- Increased efficiency of FE generation portfolio
------------ -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
------------ -------------------------------- -----------------
<PAGE>
CREATES REGION'S PREMIER SUPPLIER
- Accelerates retail strategy through doubling of customer base - 4.3 Million
U.S. Customers
[Map of Ohio and Pennsylvania]
------------ -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
------------ -------------------------------- -----------------
<PAGE>
CREATES REGION'S PREMIER SUPPLIER
- Significant geographic presence in three states
[pie chart]
OH 49%
PA 28%
NJ 23%
------------ -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
------------ -------------------------------- -----------------
<PAGE>
GREATER SCOPE AND SCALE
TARGET REGION
[Map displaying states of Wisconsin, Michigan, Illinois, Indiana, Kentucky,
Ohio, West Virginia, Virginia, New York, Pennsylvania, New Jersey, Maryland,
Delaware]
- 4.3 million U.S. customers
- $12.0 billion in annual sales
- 12,567 MW of installed generating capacity in U.S.
- 4th largest mechanical contracting and construction business
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
Greater Scope and Scale - Customers
CUSTOMER RANKING
[Graph]
RANK COMPANY MM
1 FPL/Entergy 6.3
2 Con Edison/Northeast Utilities 5.0
3 Unicom Corp./PECO Energy 4.9
4 AEP 4.9
5 PG&E 4.5
FIRSTENERGY/GPU 4.3
6 Edison International 4.2
7 Southern 3.8
8 New Century Energies/NSP 2.9
9 CP&L/Florida Progress 2.6
10 Texas Utilities 2.5
11 FIRSTENERGY 2.2
13 GPU 2.1
FIRSTENERGY WILL BE THE 6TH LARGEST ELECTRIC UTILITY BASED ON U.S. CUSTOMERS
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
Greater Scope and Scale - Market Value
MARKET RANKING
[Graph]
RANK COMPANY $MM
1 Duke Energy 24,932
2 Southern 17,189
3 FPL/Entergy 16,551
4 PECO/Unicom 14,946
5 Dominion Resources 11,799
6 AEP 11,220
7 PG&E 10,960
8 Reliant Energy 10,106
9 Con Edison/Northeast Utilities 8,719
10 TXU 8,828
FIRSTENERGY/GPU 8,465
11 NCE/NSP 8,175
12 CP&L/Florida Progress 7,562
13 PSE Group 7,708
14 Edison International 6,854
15 FirstEnergy 6,209
16-25
26 GPU 3,405
FIRSTENERGY WILL BE THE 11TH LARGEST ELECTRIC UTILITY BASED ON MARKET VALUE
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
GPU'S PROVIDER OF LAST RESORT RISK
- FE generation serves as attractive hedge against spot market price
volatility
- FE experienced in managing PA supply requirements
- Decreased reliance on spot purchases
- Continued pursuit of regulatory solution
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
OPTIMIZES FE'S GENERATION PORTFOLIO
- Increased customer load
- Increased utilization of base load units
- Increased efficiency through reduced unit cycling
- Reduced operation and maintenance expenses
- Margin capture opportunities
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
OPTIMIZES FE'S GENERATION PORTFOLIO
- Adding 1,155 MW peaking generation
- 390 MW Richland (2000)
- 425 MW West Lorain (Summer 2001)
- 340 MW Location TBD (Summer 2002)
- Opportunity for 800+ MW of capacity releases
- 380 MW available from OVEC
- 450 MW wholesale contract terminates 2005; three-year call on 150
MW
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
BROADENED MARKET OPPORTUNITIES
- Advances retail strategy and FE brand image
- Leverages relationships across larger customer base
- Wide array of energy-related products and services
-ELECTRICITY
-TELECOMMUNICATIONS
-FACILITIES MANAGEMENT
-UTILITY INFRASTRATURE CONSTRUCTION
-NATURAL GAS
-e-COMMERCE
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
BROADENED MARKET OPPORTUNITIES -
FACILITIES MANAGEMENT AND INFRASTRUCTURE CONSTRUCTION
SERVICES INCLUDE:
- HVAC Construction
- HVAC Service
- Electrical
- Refrigeration
- Utility Infrastructure Construction
- Piping
- Control Systems
- Plumbing
- Roofing
FOURTH LARGEST FACILITIES MANAGEMENT AND CONSTRUCTION COMPANY
$1 BILLION IN ANNUAL SALES
[Graphic]
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
BROADENED MARKET OPPORTUNITIES -
TELECOMMUNICATIONS
- GPU Telcom / Telergy Inc.
- FirstEnergy Telecom Corp.
- First Communications, LLC.
- America's Fiber Network
Services include:
- Fiber network services (carrier's carrier, competitive access, private
network)
- Wireless infrastructure
- Selected retail services (e.g., long-distance, calling cards)
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
BROADENED MARKET OPPORTUNITIES -
AMERICA'S FIBER NETWORK
FirstEnergy Pro Forma
---------------------
- Ownership in excess of 30%
- Will have contributed over 50,000 fiber miles to AFN by year-end
America's Fiber Network
-----------------------
- Super-regional, high speed, fiber optics company
- More than 7,000 route miles (140,000 fiber miles) connecting major and
secondary markets in the eastern U.S.
[Map displaying America's Fiber Network Route Map of AEPC, Allegheny, CFW,
FirstEnergy, GPU, R & B]
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
BROADENED MARKET OPPORTUNITIES -
INTERNET AND TECHNOLOGY APPLICATIONS
- Pantellos - 7.3% equity stake
- Ballard Power Systems
- Powerspan
- APX
- Utility.com
- Other
[Graphics]
Innovative supply chain solutions
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
A COMPELLING STORY
- Shareholder friendly transaction
- Expected to be immediately accretive
- Accelerated earnings growth potential
- Strong cash flow
- Premier supplier in 13-state target region
- Reduces GPU's supply risk and enhances FE's generation utilization
- Broadens unregulated market opportunities
- Accelerates retail strategy deployment and brand image
- Leverage relationship across double customer-base
- Proven management team
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
Fred Hafer
Chairman, President & CEO
GPU Corp.
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
WIN-WIN TRANSACTION
- Merger of FirstEnergy and GPU-- a positive step for all stakeholders:
- Investors
- Employees
- Customers
- Communities
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
MANAGEMENT AND GOVERNANCE
- Management
- Fred Hafer, Chairman
- Pete Burg, Vice-Chairman and CEO; assumes Chairmanship upon Mr.
Hafer's retirement
- Board of Directors
- 10 FE
- 6 GPU
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
MANAGEMENT AND GOVERNANCE
- Integration Activity
- Reports to Pete Burg
- Transition Management Task Force comprised of members from FE and
GPU
- Conduct integration studies and recommend organizational
structure and workforce combination
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
Rich Marsh
Vice President & CFO
FirstEnergy Corp.
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
KEY TRANSACTION TERMS
Consideration: $36.50
Collar: $24.24 - $29.63
50% cash / 50% FE common stock
Accounting Method: Purchase
Approximately $1.1 billion of goodwill based
on current book values; annual amortization
of approximately $28 million
Consideration: $4.5 billion
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
COST SAVING OPPORTUNITIES
- Consistent with savings achieved in other utility combinations
- 5% of non-generation O&M; $150 million annual estimate
- Cost savings will result from:
- Elimination of duplicative activities
- Improved operating efficiencies
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
DRIVERS OF EXPECTED EARNINGS GROWTH
Contributors to EPS Growth Rate
[Graph]
- Utilities . . . . . . . . . . . . . . . . . . 2.0%
- Domestic
- International
- Unregulated Retail. . . . . . . . . . . . . . 4.0 - 4.5%
- Electric
- Natural Gas
- Facility Services
- Unregulated Other . . . . . . . . . . . . . . 1.0 - 1.5%
- Utility Infrastructure Construction
- Telecommunications
- Unregulated International
- Total EPS Growth Rate 7.0 - 8.0%
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
STRATEGIC FOCUS
- Strategy remains focused on 13-state target region
- Support GPU's existing program for divestiture of certain
international assets
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
COMMITMENT TO CREDIT QUALITY
- Initial debt to total capital ratio = 66%; 58% by 2004
- Consistent strategy to improve credit quality
- Debt paydown of $1.8 billion by 2004
- FFO / Interest Coverage greater than 2.8
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
APPROVAL PROCESS
- FE and GPU shareholder approval
- OH, PA, NJ as needed
- FERC, SEC, NRC, FCC, HSR
TARGET COMPLETION: 12 MONTHS
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
FE IS WELL POSITIONED FOR TRANSACTION
- Improved Financial Profile
- Strong operating cash flow
- Reduced leverage: 63% (1997) to 59%
- Reduced payout ratio: 77% (1997) to 58%
- Accelerated depreciation / amortization since 1995: $1.2 billion
- Positive ratings outlook
- Opportunity for full stranded cost recovery
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
MERGER TRACK RECORD -
Ohio Edison/Centerior Merger 1997
PROMISES MADE PROMISES KEPT
- Synergy capture of - $700+ million achieved in under
$1 billion over 10 years 3 years; $350 million annual rate
- Maximize value of - Improved plant availability
generation portfolio
- Debt reduction - Approx. $1.5 billion redeemed
since 1997
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
MERGER TRACK RECORD -
Ohio Edison/Centerior Merger 1997
PROMISES MADE PROMISES KEPT
- PRESERVE VALUE THROUGH
REGULATORY PROCESS
- OE Rate Plan - Benefits preserved
- FE Rate Plan - Implemented
- Stranded Cost Recovery - Opportunity for full stranded
asset recovery
- Transition Plan - Approved
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
Pete Burg
Chairman and CEO
FirstEnergy Corp.
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
A COMPELLING STORY
- SHAREHOLDER FRIENDLY transaction
- Expected to be immediately accretive
- Accelerated earnings growth potential
- Strong cash flow
- PREMIER SUPPLIER in 13-state target region
- REDUCES GPU'S SUPPLY RISK and enhances
FE's generation utilization
- Broadens unregulated MARKET OPPORTUNITIES
- Accelerates retail strategy deployment and brand image
- Leverage relationship across double customer-base
- PROVEN MANAGEMENT team
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
FirstEnergy(R)
& GPU(SM)
The Premier
Regional Supplier of
Energy and Related Services
August 9, 2000
<PAGE>
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, FirstEnergy Corp. and GPU, Inc. will
file a joint proxy statement/prospectus with the Securities and Exchange
Commission. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE JOINT PROXY
STATEMENT / PROSPECTUS WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of
the joint proxy statement / prospectus (when available) and other documents
filed by FirstEnergy and GPU with the Commission at the Commission's Web site at
http://www.sec.gov. Free copies of the joint proxy statement / prospectus, once
available, and each company's other filings with the Commission may also be
obtained from the respective companies. Free copies of FirstEnergy's filings may
be obtained by directing a request to FirstEnergy Corp., Investor Services, 76
S. Main St., Akron, Ohio 44308-1890, Telephone: 1-800-736-3402. Free copies of
GPU filings may be obtained by directing a request to GPU, Inc., 300 Madison
Ave., Morristown, NJ 07962-1911, Telephone: 1-973-401-8204.
FirstEnergy, its directors, certain executive officers, and certain other
employees (Thomas M. Welsh, manager of Communications, and Kurt E. Turosky,
manager of Investor Relations) may be deemed under the rules of the Commission
to be "participants in the solicitation" of proxies from the security holders of
FirstEnergy in favor of the merger. FirstEnergy's directors, and executive
officers beneficially own, in the aggregate, less than 1% of the outstanding
shares of FirstEnergy common stock. Security holders of FirstEnergy may obtain
additional information regarding the interests of the "participants in the
solicitation" by reading the joint proxy statement/prospectus relating to the
merger when it becomes available.
GPU, its directors (Theodore H. Black, Fred D. Hafer (Chairman; CEO and
President), Thomas B. Hagen, Robert Pokelwaldt, John M. Pietruski,
Catherine A. Rein, Bryan S. Townsend, Carlisle A.H. Trost, Kenneth L. Wolfe
and Patricia K. Woolf), certain executive officers (Ira H. Jolles (Senior
Vice President and General Counsel), Bruce L. Levy (Senior Vice President
and CFO) and Carole B. Snyder (Executive Vice President Corporate Affairs))
and certain other employees (Jeff Dennard (Director of Corporate
Communications), Joanne Barbieri (Manager of Investor Relations) and Ned
Raynolds (Manager of Financial Communications)) may be deemed under rules
of the commission to be "participants in the solicitation" of proxies from
the security holders of GPU in favor of the merger. GPU's directors, and
executive officers beneficially own, in the aggregate, less than 1% of the
outstanding shares of GPU common stock. Security holders of GPU may obtain
additional information regarding the interests of "participants in the
solicitation" by reading the joint proxy statement/prospectus relating to
the merger when it becomes available.
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
APPENDIX
DIRECT INQUIRIES TO:
Kurt E. Turosky
FirstEnergy Corp.
330-384-5500
www.firstenergycorp.com
Joanne M. Barbieri
GPU
(973) 401-8720
www.GPU.com
-------------- -------------------------------- -----------------
FirstEnergy(R) The Premier Regional Supplier of FirstEnergy & GPU
Energy and Related Services
-------------- -------------------------------- -----------------
<PAGE>
GPU
===========================================================================
DISCUSSION LEADER TALKING POINTS
AUGUST 8, 2000
Towers Perrin
-------------=============
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This presentation contains forward-looking statements within the meaning of
the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements with respect to revenues, earnings, performance,
strategies, prospects and other aspects of the businesses of FirstEnergy
Corp. and GPU, Inc. are based on current expectations that are subject to
risks and uncertainties. A number of factors could cause actual results or
outcomes to differ materially from those indicated by such forward-looking
statements. These factors include, but are not limited to, risks and
uncertainties set forth in FirstEnergy's and GPU's filings with the SEC,
including risks and uncertainties relating to: failure to obtain expected
synergies from the merger, delays in obtaining or adverse conditions
contained in any required regulatory approvals, changes in laws or
regulations, economic or weather conditions affecting future sales and
margins, changes in markets for energy services, changing energy market
prices, availability and pricing of fuel and other energy commodities,
legislative and regulatory changes (including revised environmental and
safety requirements), availability and cost of capital and other similar
factors. Readers are referred to FirstEnergy's and GPU's most recent
reports filed with the Securities and Exchange Commission.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, FirstEnergy Corp. and GPU, Inc.
will file a joint proxy statement/prospectus with the Securities and
Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE
JOINT PROXY STATEMENT / PROSPECTUS WHEN IT BECOMES AVAILABLE, BECAUSE IT
WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may
obtain a free copy of the joint proxy statement / prospectus (when
available) and other documents filed by FirstEnergy and GPU with the
Commission at the Commission's Web site at http://www.sec.gov. Free copies
of the joint proxy statement / prospectus, once available, and each
company's other filings with the Commission may also be obtained from the
respective companies. Free copies of FirstEnergy's filings may be obtained
by directing a request to FirstEnergy Corp., Investor Services, 76 S. Main
St., Akron, Ohio 44308-1890, Telephone: 1-800-736-3402. Free copies of GPU
filings may be obtained by directing a request to GPU, Inc., 300 Madison
Ave., Morristown, NJ 07962-1911, Telephone: 1-973-401-8204.
FirstEnergy, its directors, certain executive officers, and certain other
employees (Thomas M. Welsh, manager of Communications, and Kurt E. Turosky,
manager of Investor Relations) may be deemed under the rules of the
Commission to be "participants in the solicitation" of proxies from the
security holders of FirstEnergy in favor of the merger. FirstEnergy's
directors, and executive officers beneficially own, in the aggregate, less
than 1% of the outstanding shares of FirstEnergy common stock. Security
holders of FirstEnergy may obtain additional information regarding the
interests of the "participants in the solicitation" by reading the joint
proxy statement/prospectus relating to the merger when it becomes
available.
GPU, its directors (Theodore H. Black, Fred D. Hafer (Chairman; CEO and
President), Thomas B. Hagen, Robert Pokelwaldt, John M. Pietruski,
Catherine A. Rein, Bryan S. Townsend, Carlisle A.H. Trost, Kenneth L. Wolfe
and Patricia K. Woolf), certain executive officers (Ira H. Jolles (Senior
Vice President and General Counsel), Bruce L. Levy (Senior Vice President
and CFO) and Carole B. Snyder (Executive Vice President Corporate Affairs))
and certain other employees (Jeff Dennard (Director of Corporate
Communications), Joanne Barbieri (Manager of Investor Relations) and Ned
Raynolds (Manager of Financial Communications)) may be deemed under rules
of the commission to be "participants in the solicitation" of proxies from
the security holders of GPU in favor of the merger. GPU's directors, and
executive officers beneficially own, in the aggregate, less than 1% of the
outstanding shares of GPU common stock. Security holders of GPU may obtain
additional information regarding the interests of "participants in the
solicitation" by reading the joint proxy statement/prospectus relating to
the merger when it becomes available.
<PAGE>
Guidelines for Senior Leader Discussion GPU
===========================================================================
[] IN ADVANCE, REVIEW ALL COMMUNICATIONS TO EMPLOYEES TO BE SURE YOU ARE
CONSISTENT WITH WHAT THEY ARE READING
[] Be sure all available employees are present before beginning the
discussion
[] Assign one person to record comments and questions
[] Start by asking if anyone wants to share their comments or concerns;
indicate you will try to address through this discussion
[] Remind employees of communication restrictions (see p. 2)
[] Distribute employee information received via e-mail (see p. 3)
[] Review main points from Fred's Remarks (p. 5-11)
[] Answer employee questions
[] Use text from Fred's Remarks and FAQs for approved answers
[] If you do not know the answer to a questions, say so. Be sure all
unanswered questions and comments are recorded and sent to
Corporate Communications
[] Indicate that questions and answers will be posted on the web site
as soon as possible
Towers Perrin 1
-------------=============
<PAGE>
Important Communication Message GPU
===========================================================================
[] Please reiterate:
[] We are committed to keeping you informed as to the progress of this
merger and the impact it may have on you. However, communications
about the merger will be limited due to the lack of available
information at this time. We have established a process for
collecting questions and communicating responses. Our intent and
desire is to provide as much information as soon as it is
available and possible to communicate.
Towers Perrin 2
-------------=============
<PAGE>
Employee Information GPU
===========================================================================
<TABLE>
<CAPTION>
Frequently
Fred's Remarks Facts At A Glance Questions and Asked
Resources Questions
<S> <C> <C> <C>
[] Text from Fred [] One-page [] Provides a list [] Gives answers
Hafer's summary of of places where to some
employee FirstEnergy-GPU employees can go potential
broadcast facts for information employee
about the merger questions
[] We'll be
adding to these
as we learn
more
</TABLE>
Towers Perrin 3
-------------=============
<PAGE>
Main Points from Fred's Remarks
===========================================================================
Towers Perrin
-------------=============
<PAGE>
Business Strategy and Fit with FirstEnergy GPU
===========================================================================
[] The merger is consistent with our business strategy to build our
infrastructure, improve on our delivery of services, and grow
energy-related businesses
[] The industry landscape and rules have changed significantly in the
last 12 months. There are a few big players and a number of smaller
players
[] With this kind of fragmentation, consolidation is inevitable
[] The merger with FirstEnergy will ensure that we are part of a
substantial company that can stand on its own feet and grow
Towers Perrin 5
-------------=============
<PAGE>
Timing of Merger GPU
===========================================================================
[] We hope to complete the merger by mid 2001.
[] The actual process could take as little as nine months and as long
as 18 months, depending on regulatory approval.
Towers Perrin 6
-------------=============
<PAGE>
General Information about FirstEnergy GPU
===========================================================================
[] General information about FirstEnergy:
[] Tenth largest investor-owned retail energy and related services
supplier Headquartered in Akron, Ohio
[] 2.2 million customers
[] 13,200 mile service area in northern and central Ohio and western
Pennsylvania
[] Revenues were $6.7 billion for 12 months ended June 30, 2000
[] Operate 16 power plants that produce approximately 12,000
megawatts of electricity. Annually, FirstEnergy sells about
62 billion kilowatt-hours of electricity
[] Complementary service territories which enable us to have a
significant footprint in Ohio, Pennsylvania and New Jersey
Towers Perrin 7
-------------=============
<PAGE>
Merger or Acquisition GPU
===========================================================================
[] It is important to keep in mind that this is a complex transaction.
You may hear it described as a merger or an acquisition
[] In reality, the deal falls between the two
[] As a merger, this is a combination of companies where we have a
significant input into the terms of the deal and what the new
organization will look like going forward
[] It may look like an acquisition because FirstEnergy is larger and
is paying our shareholders a premium
[] Perhaps the best way to characterize the deal is that we are operating
in a spirit of partnership
Towers Perrin 8
-------------=============
<PAGE>
Transition Process GPU
===========================================================================
[] Until the merger is complete, the two companies will operate
independently. During this period of time, a transition process
will be implemented to integrate the two organizations.
[] A Transition Management Steering Committee will oversee the transition.
Members will include Peter Burg, CEO of FirstEnergy, and Committee
Chair, Fred Hafer, Committee Vice Chair, Carole Snyder, and two other
executives from FirstEnergy. Responsibilities:
[] Serve as conduit for the flow of information between the two
companies and their subsidiaries
[] Develop regulatory plans and proposals, corporate organizational
and management plans, and workforce combination proposals
[] Evaluate and recommend the best way to organize and manage the
new company.
[] People representing both organizations will serve on transition teams
to review practices from each company and recommend the best practices
going forward. This process will enable people to begin working
together, facilitating integration after the merger is completed.
Towers Perrin 9
-------------=============
<PAGE>
Structure and Locations GPU
===========================================================================
[] GPU subsidiaries will operate as subsidiaries of FirstEnergy. The
GPU Energy name will be retained, and added to the name will be
"a FirstEnergy company."
[] The headquarters of the new entity will be located in Akron, Ohio,
with a significant presence in Pennsylvania and a continued executive
and operating presence in New Jersey.
[] GPUE will continue to be headquartered in Reading. Other business
units will continue to operate in their current locations through
the merger completion; their locations and operations will be
reviewed during the transition process.
Towers Perrin 10
-------------=============
<PAGE>
Leadership and Staffing GPU
===========================================================================
[] Fred Hafer will serve as Chairman of FirstEnergy until he retires
at age 62. Peter Burg will serve as Vice Chairman and CEO of
FirstEnergy. Mike Chesser, CEO and president of GPU Energy, will
remain in his role.
[] The combined company will need most of the resources available in
both companies and is dedicated to retaining valuable talent.
[] Where there are duplicate roles and services, however, decisions
will be made during the transition process about how to select
those needed for the future of the business. GPU and FirstEnergy
have agreed that the criteria for selecting non-bargaining unit
employees from both companies for employment by the new company will
include previous work history, job experience and qualifications.
[] There will be many new and significant job opportunities available
to GPU employees, although the specifics of these will not be known
immediately.
[] Decisions about jobs and the selection process will be communicated
as soon as they are known.
Towers Perrin 11
-------------=============
<PAGE>
Leadership and Staffing, continued GPU
===========================================================================
[] Once the merger is completed some employees may be asked to move.
These employees will be provided financial assistance and relocation
services for their moves. For those who choose not to relocate, GPU
will establish an Employee Merger Transition Program.
[] For employees who choose not to relocate or are not asked to join the
new company, GPU will establish an Employee Merger Transition Program
(for nonbargained employees of GPUS and GPUE). This program will
provide financial protection, medical, dental and life insurance,
and outplacement services for a specified period of time for
employees who do not join the combined company. Details of this
program are described in a separate document.
Towers Perrin 12
-------------=============
<PAGE>
Closing Remarks GPU
===========================================================================
[] The leadership team is enthusiastic about this decision
[] We believe that our collective efforts will bring us greater
success in the energy industry
[] It's in all of our best interests to continue our focus on meeting
and exceeding customer expectations
[] Please continue to strive for excellence in your daily work
and support one another through this change
[] In the coming weeks, we will update the Merger Web Site, publish
future issues of Connect!, and hold meetings to give you available
new information
[] My role is to continue to provide you with support and information.
If you have concerns or questions that aren't getting addressed,
please let me know.
Towers Perrin 13
-------------=============
<PAGE>
INFORMATION FROM WEB-SITE
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This presentation contains forward-looking statements within the meaning of
the "safe harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements with respect to revenues, earnings, performance,
strategies, prospects and other aspects of the businesses of FirstEnergy
Corp. and GPU, Inc. are based on current expectations that are subject to
risks and uncertainties. A number of factors could cause actual results or
outcomes to differ materially from those indicated by such forward-looking
statements. These factors include, but are not limited to, risks and
uncertainties set forth in FirstEnergy's and GPU's filings with the SEC,
including risks and uncertainties relating to: failure to obtain expected
synergies from the merger, delays in obtaining or adverse conditions
contained in any required regulatory approvals, changes in laws or
regulations, economic or weather conditions affecting future sales and
margins, changes in markets for energy services, changing energy market
prices, availability and pricing of fuel and other energy commodities,
legislative and regulatory changes (including revised environmental and
safety requirements), availability and cost of capital and other similar
factors. Readers are referred to FirstEnergy's and GPU's most recent
reports filed with the Securities and Exchange Commission.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, FirstEnergy Corp. and GPU, Inc.
will file a joint proxy statement/prospectus with the Securities and
Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE
JOINT PROXY STATEMENT / PROSPECTUS WHEN IT BECOMES AVAILABLE, BECAUSE IT
WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders may
obtain a free copy of the joint proxy statement / prospectus (when
available) and other documents filed by FirstEnergy and GPU with the
Commission at the Commission's Web site at http://www.sec.gov. Free copies
of the joint proxy statement / prospectus, once available, and each
company's other filings with the Commission may also be obtained from the
respective companies. Free copies of FirstEnergy's filings may be obtained
by directing a request to FirstEnergy Corp., Investor Services, 76 S. Main
St., Akron, Ohio 44308-1890, Telephone: 1-800-736-3402. Free copies of GPU
filings may be obtained by directing a request to GPU, Inc., 300 Madison
Ave., Morristown, NJ 07962-1911, Telephone: 1-973-401-8204.
FirstEnergy, its directors, certain executive officers, and certain other
employees (Thomas M. Welsh, manager of Communications, and Kurt E. Turosky,
manager of Investor Relations) may be deemed under the rules of the
Commission to be "participants in the solicitation" of proxies from the
security holders of FirstEnergy in favor of the merger. FirstEnergy's
directors, and executive officers beneficially own, in the aggregate, less
than 1% of the outstanding shares of FirstEnergy common stock. Security
holders of FirstEnergy may obtain additional information regarding the
interests of the "participants in the solicitation" by reading the joint
proxy statement/prospectus relating to the merger when it becomes
available.
GPU, its directors (Theodore H. Black, Fred D. Hafer (Chairman; CEO and
President), Thomas B. Hagen, Robert Pokelwaldt, John M. Pietruski,
Catherine A. Rein, Bryan S. Townsend, Carlisle A.H. Trost, Kenneth L. Wolfe
and Patricia K. Woolf), certain executive officers (Ira H. Jolles (Senior
Vice President and General Counsel), Bruce L. Levy (Senior Vice President
and CFO) and Carole B. Snyder (Executive Vice President Corporate Affairs))
and certain other employees (Jeff Dennard (Director of Corporate
Communications), Joanne Barbieri (Manager of Investor Relations) and Ned
Raynolds (Manager of Financial Communications)) may be deemed under rules
of the commission to be "participants in the solicitation" of proxies from
the security holders of GPU in favor of the merger. GPU's directors, and
executive officers beneficially own, in the aggregate, less than 1% of the
outstanding shares of GPU common stock. Security holders of GPU may obtain
additional information regarding the interests of "participants in the
solicitation" by reading the joint proxy statement/prospectus relating to
the merger when it becomes available.
WHY MERGE?
You may be surprised that GPU is merging with FirstEnergy when we've said
previously that we wanted to stay independent and seek our own
acquisitions. However, the industry landscape and rules have changed
significantly in the last 12 months.
There are a few big players and a number of smaller players. Those who
ignore or fight consolidation will not be successful. Winners will be those
who have critical mass and strength -- like FirstEnergy and GPU combined.
WHO'S FIRSTENERGY?
FirstEnergy is the tenth largest investor-owned retail energy and
related services supplier and is headquartered in Akron, Ohio.
FirstEnergy provides services to a customer base of 2.2 million within
13,200 miles of northern and central Ohio and western Pennsylvania.
The company's revenues were $6.7 billion for the 12 months ending on
June 30, 2000.
THE RIGHT FIT
FirstEnergy is the right fit for us in terms of our strategic objectives,
our culture and values, our locations, and our systems.
FirstEnergy is committed to growth in nonregulated businesses,
including construction and telecommunications.
FirstEnergy has a construction business that will be complementary to
our businesses.
We both strongly value our people and our communities.
Our service territories are complementary.
In comparison to other utility mergers, GPU and FirstEnergy offer services
that are complementary. Our goal is to integrate and maximize the strengths
of both organizations, becoming a formidable presence in the industry.
WHAT'S NEEDED TO COMPETE?
Merging with FirstEnergy enables GPU to be part of an organization with the
customer base and market capitalization necessary to compete in the
consolidating utility market. Industry projections suggest that to compete
effectively:
5 million plus customers are necessary
GPU currently has 2 million customers in the U.S.
Market capitalization should be close to $10 billion.
GPU has a market capitalization of $3.7 billion compared to other companies
like Duke, Southern and Peco/Unicom, all of whom have market capitalization
in the teens.
GPU + FIRSTENERGY -- WHAT WE'LL HAVE TOGETHER
The merger between FirstEnergy and GPU creates a combined company with:
4.3 million customers in the U.S.
2.7 million international customers
Estimated market capitalization of $9 billion and revenues of $12
billion
Geographic strength with a strong east/west position and a solid
"footprint" in Ohio, Pennsylvania and New Jersey with 37,200 miles of
service territory
16 power plants producing approximately 12,000 megawatts of
electricity
Nonregulated businesses in construction, contracting, energy
management and telecommunications.
Financially, the new company can:
Improve customer retention potential through increased product/service
offerings
Diversify our customer base
Improve the overall cost structure
Provide opportunities to leverage efficiencies to create value.
GPU will also benefit from a competitive cost structure and larger mass.
FirstEnergy's development in HVAC systems is a good fit for MYR, and their
subsidiary in western Pennsylvania complements GPUE's service territory.
WHAT ATTRACTED FIRSTENERGY TO GPU?
There are many reasons why FirstEnergy wanted to combine businesses with
GPU:
GPU has a solid business strategy.
We have rapidly developed nonregulated businesses, including leading
construction companies and Telcom.
We've made advancements in preparation for deregulation.
SAP is already implemented -- cutting-edge technology that sets GPU apart
from most other utilities.
MERGER OR ACQUISITION?
This is a complex transaction. You may hear it described as a merger or an
acquisition. In reality, the deal falls between the two.
As a merger, this is a combination of companies where we have
significant input into the terms of the deal and what the new
organization will look like going forward. A significant number of GPU
people will be involved in the process.
It may look like an acquisition because FirstEnergy is larger and is
paying our shareholders a premium.
Perhaps the best way to characterize the deal is that we are operating in a
"spirit of partnership."
HOW WILL IT HAPPEN?
Successful mergers involve a lot of careful planning and hard work. Our
leadership team is committed to making this transition as smooth as
possible. Here are some of the details of how the merger will happen. We'll
add more details as we know them.
TIMING AND PROCESS
GPU and FirstEnergy hope to complete the merger by mid-2001. The actual
process could take as little as nine months and as long as 18 months,
depending on regulatory approval.
Until the merger is complete, the two companies will operate independently.
During this period of time, a transition process will be implemented to
integrate the two organizations. A Transition Management Steering Committee
will oversee the transition. Members will include Peter Burg, CEO of
FirstEnergy and Committee Chair; Fred Hafer, Committee Vice Chair; Carole
Snyder and two other executives from FirstEnergy.
HERE'S WHAT THEY'LL DO:
Serve as a conduit for the flow of information between the two
companies and their subsidiaries
Develop regulatory plans and proposals, corporate organizational and
management plans, and workforce combination proposals
Evaluate and recommend the best way to organize and manage the new
company.
People representing both organizations will serve on transition teams to
review practices from each company and recommend the best practices going
forward. This process will give people from the two companies a chance to
work together, helping to smooth the integration.
OUR NAME AND STOCK
Following the completion of the merger, the stock will be traded under
FirstEnergy's name. GPU subsidiaries will operate as subsidiaries of the
FirstEnergy Corp. The GPU Energy name will be retained, and added to the
name will be "a FirstEnergy company."
HEADQUARTERS
The headquarters of the new entity will be located in Akron, Ohio, with a
significant presence in Pennsylvania and a continued executive and
operating presence in New Jersey. GPUE will be directed by current CEO and
President Mike Chesser and continue to be headquartered in Reading. Other
business units will continue to operate in their current locations through
the merger completion; their locations and operations will be reviewed
during the transition process.
STAFFING
The combined company will need most of the resources available in both
companies -- and is dedicated to retaining valuable talent. There will be
new and significant job opportunities available to GPU employees, although
the specifics of these will not be known immediately. Decisions will be
made during the transition process about how to select those needed for the
future of the business. GPU and FirstEnergy have agreed that the criteria
for selecting non-bargaining unit employees from both companies for
employment by the new company will include previous work history, job
experience and qualifications. GPU will have substantial input in
determining the selection process. Decisions about jobs and the selection
process will be communicated as soon as possible.
WHAT IF IT DOESN'T HAPPEN?
Although we fully expect that the merger will go forward, it is possible
that it will not take place. We will do everything we can to expedite the
regulatory approval process.
However, it's critically important that we make sure we could continue
operating on our own, even as we plan for the merger to go through. That
means that all GPU employees must continue to focus on delivering superior
customer service in every way.
WHAT ABOUT ME?
Probably the first question that comes to mind when a merger is announced
is, What about me? Will I have a job? Will I have to move? What's going to
happen to my pay and benefits? How do I explain things to my family? And
many more ...
We don't know yet exactly what is going to happen. So we can't tell you
definitely that you will have a job. However, we do know that a majority of
GPU employees will not see a change in their roles due to the merger.
The waiting and uncertainty is hard. We know that. Right now we can tell
you the plans we've made so far. And we'll tell you more as we can.
EMPLOYEES STAYING WITH THE COMBINED COMPANY
Benefit options and the compensation review process will remain unchanged
for bargaining unit employees under the terms of the collective bargaining
agreements.
For non-bargaining employees it is expected that GPU employees would
transition to FirstEnergy programs. This transition may not take place
immediately and may only take place after a comprehensive review of both
companies' programs during the transition process.
RELOCATION
Once the merger is completed some employees may be asked to move. These
employees will be provided financial assistance and relocation services for
their moves.
EMPLOYEE MERGER TRANSITION PROGRAMS
For those who are not offered a position in the combined company, or who
choose not to relocate, GPU will establish an Employee Merger Transition
Program. This program will provide financial protection, medical, dental
and life insurance, and outplacement services for a specified period of
time for employees who do not join the combined company. Details of this
program will be communicated shortly.
