Filed by Entergy Corporation
Pursuant to Rule 425 under the Securities Act of 1933
And deemed filed pursuant to Rule 14a-12
Of the Securities Exchange Act of 1934
Subject Company: Entergy Corporation
Commission File No. 1-11299
Transcript of Entergy Corporation-FPL Group, Inc. Analyst Meeting
held July 31, 2000 New York, New York
ANALYST MEETING TRANSCRIPT
FPL GROUP, INC. / ENTERGY CORPORATION
MONDAY, JULY 31, 2000
WALDORF ASTORIA HOTEL - NEW YORK CITY
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the FPL
Group, Inc., and Entergy Corporation analysts' teleconference. With us
today we have Mr. James Broadhead, chairman and chief executive officer
of FPL Group, Inc., and Mr. Wayne Leonard, chief executive officer of
Entergy Corporation. At this time, all participants are in a listen-only
mode. Later we will conduct a question-and-answer session. At that
time, if you have a question you will need to press the one followed by
the four on your push-button phone.
As a reminder, this conference is being recorded and is copyrighted
material. Therefore, please note that it cannot be recorded, transcribed
or rebroadcast without FPL Group, Inc., and Entergy Corporation
permission. Your participation implies consent to our recording this
call. If you do not agree to these terms, simply drop off the line.
I would now like to turn the conference over to Mr. James Broadhead.
James L. Broadhead: Good morning, everybody. It's nice to see you here. We're
pleased that you all made an effort to come and we're really delighted to
review with you today the-- what we think is a very exciting opportunity
for the shareholders of both Entergy and FPL Group.
As you're well aware we announced this morning that the boards of
directors of our two companies unanimously approved a merger and this is
a merger of equals. For each share of FPL Group common stock, the
holders will receive one share of the new combined company and Entergy
holders will receive .585 of a share of the new company. Overall, the
shareholders of FPL Group will own 57 percent of the combined company and
Entergy shareholders will own 43 percent.
I'll be the chairman of the new company and Wayne Leonard will be the
president and the chief executive officer. We'll both serve on the board
of directors. It'll be a 15-person board of directors, including the two
of us. Eight of the seats will be filled by FPL Group and seven from
Entergy. The headquarters of the new company will be in Juno Beach,
Florida, and the utility group headquarters will be in New Orleans.
Now, we think this merger will deliver very significant value in a
number of different ways. First, it's going to be immediately accretive to
both of the companies and through the realization of annual synergies, which
are projected to grow from $150 million the first year to $275 million in
year three, we expect to grow our earnings per share in excess of 10
percent and that's a rate that is higher than either of the two companies
could deliver as stand-alone entities.
I'd note that there is de minimus goodwill created in this because
Entergy, as you know, is trading, essentially, at book value. We'll be
paying a dividend that's consistent with FPL Group's dividend, so Entergy
shareholders will get an increased dividend upon the closing of the
transaction. And to signal to you just how attractive a transaction we
think this is, we are going to launch a share buy-back program of a
billion dollars and that includes both companies' current authorized
share repurchase programs.
Now, I mentioned two seconds ago sizable synergies. They'll arise
from several sources. The regulated business we expect to have annual cost
savings that'll grow from $110 million the first year to $150 in the
third year. Primarily, that's going to come from eliminating duplicate
corporate and administrative functions and from general procurement
economies. We expect annual cost savings and revenue enhancements from
the competitive businesses of $40 million in the first year growing to
$125 million. And further, we expect the competitive businesses to
realize annual capital expenditures savings that would be growing from
$50 million to about $100 million. So, in total, in the first three
years, the company should produce annual synergies that'll grow from $200
million to $375 million.
Now, we think it's reasonable to expect that this transaction can
close within 15 months. Of course, we have the numerous regulatory approvals
that have to be completed and various regulatory reviews. On the federal
level, we'll have to get the approval of the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, the Nuclear
Regulatory Commission. We think these should be pretty routine and we
really don't see any issues that ought to, in any way, prevent or delay
approval. Because the combination of the two companies is intended to
produce improved customer service, improved reliability and plant
performance and therefore lower cost, we're optimistic that the state
utility commissions will endorse our merger expeditiously, as well.
We anticipate that when all is said and done, there are going to be a
relatively small number of important electrical companies left in the
United States, over time. And we believe that this merger will give us
the size and the scale and the scope to be one of those companies.
We're going to be the largest utility, serving more than 6.3 million
customers in five different states. We'll have more than 48,000
megawatts of generating capacity, number one in the nation, and with
nearly 10,000 megawatts of nuclear generating capacity, we are going to
be the second largest nuclear generator. And with an equity market
capital of $16.4 billion, we'll rank second. So clearly, this is a
company that's going to have the size and the scale to be one of the few
successful players in this industry.
Not only will we be big, but we'll have superior financial strength.
As you know, our balance sheets are among the strongest in the industry.
We're going to have financial flexibility to take advantage of growth
opportunities when the right opportunities arise.
Combine that with a strong set of core competencies and a highly
talented work force and I think you have a winning combination that is going
to deliver solid results. There's no doubt in my mind that we're going to
be successful. Wayne and I know each other, like each other. We have
the same approach to what it takes to win and we're both focused on
creating shareholder value and we're going to make it happen, along with
the other members of our team.
Another way to look at this combination is to think of it as that
we are creating a top performing, super-regional utility that we expect can
only get better and we're creating a leading wholesale energy generation
company that should grow much faster than either of the two companies can
do independently. And let me just talk about those two things, beginning
with the utility.
The new, super-regional utility that I talked about spans the Gulf
South and reaches from Florida to Texas. This new geographic footprint gives
us plenty of room for expansion across the area and beyond, if that would
be appropriate.
And we have what it takes to remain a top-performing utility. Our
customer base is strong and growing. Florida alone, as you know, expects
customer growth to be in the 2 percent a year average and we have
actually been growing faster than that recently. At the utility group,
we're going to own plants that have more than 38,000 megawatts of
capacity and we will have a centralized organization that will be
operating all of the power plants, both utility and non-utility, and that
way we can utilize the world-class operating skills that we have. And,
as you know, we have a solid track record of high plant availability.
Now, we at FPL Group have made year-over-year improvements in service
reliability and price and we rank in the top decile or top quartile in
most measurements of performance. Entergy, under Wayne's leadership, has
made some remarkable improvements in these areas as well and I think by
sharing best practices we are going to find that the quality of service
and productivity in all of the states is going to improve.
We have other advantages as well. I've mentioned in the past and I
know Wayne has, the advantage that we have by having a very clean portfolio of
generation. Not only is this something that is useful with the
customers, not only does one sometimes get better prices by having a
clean portfolio, but I think this will avoid future costs that many other
utilities are going to have absorb when we have some future environmental
standards that are stricter and I believe that's going to happen, it's
just a question of how and when.
Certainly the strong cash flow we expect for this company will give us
added flexibility to continue to grow profitably as well. And, speaking
of growing, the combined wholesale energy business will be among the top
independent power producers. The merger of our two companies greatly
enhances our wholesale energy business, from the developers in the field
out to the traders on the floor. I think we have what it takes to be
successful there.
As you can see from this next chart, we have a strong presence in
several areas. I finally spotted the charts down there. It used-- yesterday
it was up here. Now I know we're on the same page.
We have a strong presence in a number of different areas of the
country. The portfolios of the two independent power companies very nicely
overlap. They create several strong regional clusters, particularly in
the Northeast and in the Gulf Coast. For example, the Pilgrim Plant
would fit in wonderfully with the hydro and fossil assets that we now
have in New England. Considering our pipeline of projects, I think
you'll see these regional clusters are going to get even stronger.
As a combined company, we'll start with a sizable generation base of
nearly 10,000 megawatts of generating capacity. It's predominantly gas
and nuclear and, as you know, FPL is already the largest wind power
producer and it's not a tiny business and it's a rapidly growing one. We
also have a very impressive pipeline of development projects that could
add an additional 20,000 megawatts by 2004 and much of that growth is
going to come from green field gas-fired plants and, as you know, both
companies have contracts that will give us the turbine availability to
back up those growth plans.
We also will have the construction expertise, as well, to back it up.
FPL has had solid experience in managing the construction of gas-fired
plants and I'm really impressed with the partnership that Wayne has
struck with Shaw International that really should help our combined
companies accelerate construction schedules and also lower construction
cost.
Another critical factor for success in this business, of course, is
plant operations and I think it's often overlooked, because people often think
in terms of well, I can hire somebody else to run my plant. We learned
that you can significantly enhance revenues by having higher plant
availability, lower O&M per kilowatt hour and lower forced-outage rates.
Through these high levels of performance you increase sales, you lower
risks and you significantly enhance trading optionality. Our world-class
operators are very excited about this prospect and I think they will
ensure that we get maximum value from this portfolio.
Our superior performance in running nuclear plants, I think, is also
going to be of great importance as we go forward. Wayne's going to be
talking about that in a minute, but the bottom line is we clearly have a
combination of nuclear, gas-fired and renewable energy sources that is
going to be a big plus for our company and, frankly, a dream for the
traders.
I'm also very excited about the joint venture that Entergy and Koch
have which will be creating one of the 10 largest trading companies in the
country and I think that will significantly enhance the-- the value of
the portfolio we have and, in combination with these other skills, again,
will make us a very strong company.
Both of our companies have been sharpening our focus on regional
portfolios and that should strengthen our regional presence. As the map
I showed you a few minutes ago indicated, we already have a highly
complementary plant group in a number of regions.
Now, I'll give Wayne Leonard the opportunity to take over the podium
and tell you more about the merged company and after that we'll have an
opportunity to take your questions. Thank you very much.
J. Wayne Leonard: As Jim alluded to, under any metric that you want to use,
under any assumption you want to make about the future, this company is
positioned for industry leadership. It's positioned well for financial
success.
If we're not the best performing company in the industry over the
long term, we're going to be very disappointed. Anything other than the best
simply will not do. Let me start with, for example, our [unintelligible]
called super regional utility that is highly competitive.
In terms of customers, Jim mentioned that we had 6.3 million
customers, which is substantially more than anybody else in the industry, but
just as important as the fact that we have more scale than anybody else, is
the customer mix we see here. We have a favorable base of residential
customers that are some of the stickiest customers you'll find in this
industry. That means they're less likely to switch, if given a choice.
If you analyze the demographics, the age, the income level, the education
level for this residential base, you'll find that they're very likely to
stay with you, given a choice, and at the same time they're relatively
indifferent to price. That's why we have not seen the clamor for
deregulation in either FPL's territory or Entergy's territory.
At the same time, we have a very strong commercial base that lines up
well at very high load factors. They line up very well with the minimum
run factors on all of our nuclear plants. And then we have this big
industrial base that Entergy's contributing that has a lot of optionality
attached to it, that has value for our trading operation.
I mean industrial customers has always been a very big negative for
Entergy. So most of these customers today are under contract at
relatively low margins, so if you lose them with competition, you don't
lose a lot of margin. At the same time, if you keep them, you pick up a
lot of optionality for your trading group. Probably the best power
development opportunities in the country today are with these industrial
customers where you already have the steam sinks on the site.
In co-generation capabilities, for example, like our Riverside project
that we're developing right now with TPG [sp], we have a heat rate below
6000 BTUs per KWH, which is the best in the country. We just got
financing at the bank - 90 percent debt, 10 percent equity, which is
unheard of in this day and age because the economics of this project is
strong.
At the same time, these industrial customers are under contract where
if we can't find the power, we can interrupt service. They're under
contract that if the power prices get very high, we can buy the power
back from them at a given price and then share with the savings with them
and the great number of these industrial customers also have the ability
to switch between residual fuel and natural gas. That provides a
substantial amount of optionality for trading functions, to be able to
control that switching with your own customer base.
So we're just beginning to think through what products and services
when optionality exists in this customer base that we see right here and we're
working with Koch right now who's had a reputation as being able to
develop products and services in this market place, for example, weather
derivatives. And they're going to be working, both to help us develop
and exploit the opportunities that exist in this customer base.
You know, we're not just the biggest electric [sink?] in the country,
we're also the biggest electric supplier in the country, and Jim
mentioned that. We have almost 40,000 megawatts of capacity in our
regulated utilities, but the important point that Jim made was it's not
just capacity, it's clean capacity. And, as Jim mentioned, you've heard
me say many times, the environmental risks in this business are
absolutely enormous. And if you look at our company, of our capacity, we
have 31,000 megawatts that we would classify as clean. It's nuclear and
it's natural gas.
Now if you compare that to the second and third biggest power
products in the country -- for example, the second biggest is AEP , they
have only 11,000 megawatts of clean. Southern Company only has 5000
megawatts of clean. So when we're looking at this we have multiples of
any other competitor in terms of having clean capacity. The cost for either
of these two competitors to get to our level of admissions would be billions
of dollars, whether they use equipment to reduce emissions or whether
they buy allowances. This is the rule of thumb: To get a coal plant to
the nuclear plant level in terms of emissions would be about $20 a
megawatt hour. To get a coal plant to a natural-gas-fired unit, these
efficient production turbines, would be around $10 a megawatt hour. So
the cost for these companies, as Jim mentioned, is absolutely enormous.
So when we talk about, you know, this industry likes to brag about
its megawatts, but we ought to get the metric right and the metric in this
case ought to be clean capacity, because anything else is at substantial
risk and, in this case, we are multiples of anybody else in the industry.
Now, let me turn, if I could to our wholesale-- well, I guess we
have a slide here on environmental. By any of the standards, whether it's
CO2, SO2 or NOX, you know, we are cleaner than any-- really anybody else in
the country.
Now let me turn to the wholesale business and, as compelling as the
story is on the utility side, the real exciting piece of this is the non-
regulated business opportunities in the business. We start with some
10,000 megawatts of unregulated capacity, almost all of it clean. It's
nuclear. It's natural gas and it's renewables like solar, like hydro,
wind, geothermal.
But that's-- you haven't seen nothing yet. Over the next five years
we expect to grow this about three fold to over 30,000 megawatts and almost
all of it being clean capacity. And that's in addition to the 40,000
megawatts we already have. So five years from now you're looking at a
utility that's up over 70,000-some megawatts of capacity.
In order to do that, you have to have the turbines. And, as all of
you know, turbine capacity is very difficult to come by. Independently, both
FP&L and Entergy came to the same decision and that is that the GE
turbines are far and away the best technology. Of course, the GE turbine
line is already bought out and when you put the two companies together
what you see is that we have almost 100 of the GE turbines on order over
the next five years. We have virtually cornered it for the best
available technology in this market place.
Now, this just gives you a sense of what Jim talked about the
advantage of having a portfolio. This is not just a nuclear strategy or not
just a turbine or power development strategy. We plan on having a portfolio
of assets that is the lowest cost producer in each of our regions and
emulates, in effect, the load profile in that region. They're--
obviously, then, our base load would be nuclear and the co-generation
opportunities, but then you have the intermediate peaking with the
turbines that we're buying.
And being able to, as you've heard me say before, to be able to sell
this as a portfolio and as firm power is-- has substantial profitably
advantages over just doing one-off projects where you're selling into a
spot market or you're selling to your PPAs or you're selling unit
contingent power. If you can sell the power firm, you have the portfolio
to back it up, you're going to pick to two to three hundred basis points
[unintelligible] because it's a much higher-value product. And at the
same time, if you can trade around it, you can pick up another
[unintelligible] basis points or so in the market place. So it's a much
more valuable-- it's a much more valuable opportunity to have a portfolio
than just be doing one particular technology or in one particular region.
Now, at the same time, obviously, nuclear is the key to our strategy.
It's a very attractive business for a whole lot of reasons. Nuclear has
no environmental emissions, no airborne emissions. When you're bidding
on a nuclear plant, it has a relatively short time frame to bid and to
close. They're immediately accretive to earnings.
At the same time, in order to be in this business you have to have
scale, you have to have expertise, you have to have experience in all aspects
of the business. That means decommissioning, that means pressurized water
reactors, boiling water reactors. It means being able to do relicense
work. It means to be able to turn around plants. And putting the two
companies together allows us to take advantage of the terrific track
record that both of these two companies have.
You know, for example, FPL has had a remarkable turnaround at both
their- - their Turkey Point and St. Lucie [sp] plants. If you look at their
record over the last two years, they have-- they have probably an
unparalleled record in the industry in terms of being able to reduce
costs and increase the capacity factors at these plants. These are two
of the finest units in the entire country today. And at Entergy, we are
really looking forward to finding out exactly how they're doing it and
applying those best practices to our own-- our own eight reactors and the
reactors that we plan on purchasing in the future.
The key to this business, of course, is being able to manage the
price risk. And we-- upon close of the Entergy-Koch joint venture, we plan
on rolling the Florida-- the FPL Group's trading company into this venture
so we'll all be in the venture on day one. On all the non-regulated
opportunities we're talking about, [unintelligible] to be $125 million,
we plan on starting to capture those on day one. We will start bidding
on nuclear plants together, we'll develop power development projects on a
joint venture basis and we'll combine our trading operations immediately.
You're going to start to see some of these savings, some of these revenue
enhancements immediately, even in the year 2000.
Now, I'm not going to go through all this-- all the trading and
marketing opportunities here, but clearly this is the ``shot heard `round the
world'' in the trading business. They have never before seen the kind of
opportunity that exist in having the positions these two companies will
have when you put them together.
Now, for example -- let me go back to that last one. You know, I
really do want to mention one thing here and that is that on the resid path, on
the resid side, Koch is the biggest resid trader in the entire country.
Half of the entire resid market in the entire country is utilities and
half of all the utility usage is into Entergy and into Florida. So what
you have is, the biggest market, the biggest sink and we control the
physical underlying switching capacity of the resid fuel in the two sinks
and we have the top trader in the country to manage them.
Now that's interesting, but it's even more interesting when you
combine it with the natural gas position, because, of course, resid and natural
gas are substitutes for each other. We are also the biggest [sink] for
natural gas. We purchase about 2 BCF of natural gas a day and on peak
it's up to 3 BCF. So what you have here is you have fuels that are
substitute for each other and you're controlling, on the physical side,
the switch between the natural gas and the residual fuel, along with the
premier trader in both of those capacities.
At the same time, we have 10 to 15 barrels of storage for resid and we
have 60-- over 60 BCF of storage for natural gas. So what you have is
the ability to trade the spread between the two fuels and you have the
underlying capacity, physically, to switch between the two fuels and, at
the same time, you have the ability to trade across time because you have
storage for both of the two fuels.
Now, that's interesting, but that's not the whole story yet. If you
look at the map here, of course, what you see here in the yellow is you see--
and it's all, you know, Louisiana has the biggest gas reserves in the
country. At the same time, we have the biggest gas sinks in the country
in Louisiana and in Florida. And we have the Gateway Pipeline system,
which is part of our Koch joint venture that connects the two of us
together.
Now if you compare the Gateway Pipeline system, for example, to the
Florida Gas system, there's some differences. The Florida Gas system,
for example, has no storage, it does-- it's not connected to the Henry
hub. It pulls half of its gas out of Mobile Bay. If you compare it to
the Buccaneer pipelines that's proposed here, the Buccaneer pipeline
pulls all of its gas out of Mobile Bay, it has no storage, it's subjected
to hurricane risks at the same time and neither one of them are, of
course, connected to the Henry Hub.
The Gateway Pipeline system, as you see here, is a real network
pipeline that pulls gas from all over Louisiana. It has multiple connection
points that pull gas. We have-- it's connected to the hub, various other
liquid points. We have over 60 BCF of storage that we own. At the same
time, we have eight different storage facilities around the pipeline.
Now that makes a very big difference compared to any of the other
alternatives and when you're controlling the two sinks on both ends, then
you have the great opportunity to put that gas through your own pipes.
At the same time, you have great opportunity, if look at the Gateway
Pipeline system to extend it on into Florida with some very attractive
returns. And one of the advantages that Gateway has compared to the
Florida Gas transmission pipe, for example, is simply the fact that that
pipe is full so any incremental expansions under FERC tariffs has to be
done at incremental cost, which is very expensive. Gateway is not full,
so it can use rolled-in pricing, which is much more competitive.
So if you think about this from a trader's viewpoint, this is, as the
traders have said, a dream come true. Because what you have is, you have
the biggest position, underlying physical position between resid and
natural gas, and they're substitutes for each other and you control that
switching on the physical side. At the same time, you have storage for
both of the two, 10 to 15 million barrels on resid, a little over 60 BCF
on natural gas and you have a pipeline between the two [audio
interference] Louisiana to Florida.
So what you have the ability to do is trade the spread between the
fuels. You have the ability to trade the spread across time with the storage.
You have the ability to trade across locations with the pipeline system.
And for a trader, like I said, this is a dream come true to have this
kind of optionality, and particularly to control the underlying physical
decision to switch between the fuels.
You know, if you saw the Academy Awards a couple of years ago, you
saw a fellow, Robert-- I think it's Roberto Benigni and he won the Academy
Award for a movie called, ``Life is Beautiful.'' And when he won, he was
jumping around and dancing and standing on top of tables. He was kissing
people and doing somersaults and it was one of the most bizarre
spectacles you've ever seen. And if you ever-- if you saw it, you don't
forget it. It's been a joke for about two years.
Well, Charles Koch [sp], if you know Charles, he's one of the richest
men in the country. He's also one of the most distinguished, reserved men in
the country and when we told him we were merging with FP&L, I won't tell
you that he replicated Robert Benigni's performance, but as rich as
Charles Koch is, he was very, very happy with this merger, I can tell you
that.
Now, one of the other opportunities we have here is the fiber optic
business. Now this is an opportunity at Entergy that has simply gone
under-managed because I don't know anything about the business and nobody
in the company knows much about the business, but that's not true at
FP&L. Jim comes from a telecommunications background, they thought this
business through, they thought their business plan through and they have
a business that is poised on the verge of explosive growth.
If you look at the way they've thought through their business here
on the left, the way they've laid their fiber, they have a first-mover
advantage that allows them to greatly increase the fiber optics routes, the
fiber capacity with the use of electronics rather than laying new fiber. At
the same time, if you look at the way they've laid their routes and the
technology they've used, it's much more reliable than any of their
competitors. So even though this is a business where the margins are
coming down, because they have thought this through, they're still
selling a premium-priced product in the market place because of
reliability.
If you look at Entergy, you know, you see we have a similar lifting
opportunity, at least on paper. You know, we've laid out our fiber
routes from Little Rock to Memphis, down to New Orleans, through Jackson
to New Orleans, up to Houston and to Dallas, so added on some
[unintelligible] routes across so we had the kind of reliability that
FP&L has. And what we're going to be doing with our fiber route is we're
going to turn that over to the FP&L Group and have their business people
think through the opportunity that we have and, at the same time, we're
going to turn both of our fiber optics businesses over to Koch and
they're going to start trading bandwidth to enhance the opportunities
that we both have.
Now, that's the advantage of having partners. You know, we have a
partner now that can think through the business plan. We have a partner
now that can trade bandwidth and make this a valuable business. But
clearly, this is a business that is under-valued in the market place for
FP&L and under-managed at the Entergy Group.
Now, I talked about the opportunities that we have and they're
enormous. There's opportunities to buy nuclear plants and power development.
We've got 100 turbines. We have opportunities to grow the pipeline business,
to grow the trading business and fiber optic business, the question is,
do we have the resources to do all that?
In this chart, you know, our shareholders have seen this chart
before, and what it's meant to depict, we call it financial headroom, is your
ability to grow the business either through internal cash generation or
through accessing the capital markets without impairing your balance
sheet. Of course, where you want to be is that upper right hand corner.
Of course, FP&L has no peer. At the same time, through our asset sales
and the restructuring of our business, you see that we're positioned,
also, up there, getting closer to FP&L. But this is clearly two of the
three best-positioned companies in terms of having the financial
resources to actually follow through on their plans. So we don't just
have great opportunities, we also have great resources.
Now, one of the things that you-- that when you, I don't when you
meet with other companies you don't hear is talk, for example, about how clean
is their capacity. You don't hear, do they have the financial resources
or are they going to leverage up to 70 to 80 percent in order to achieve
their financial objectives. You know, you don't hear exactly where they
have the trading capacity, the intellectual capability to follow through
and manage all this price risk. In every one of those areas, we consider
those to be strengths of this combined company.
Now, just put another way for all of you out there that model this,
what this combined company will have is cash flows in the area of $4 billion
or so a year, which is pretty impressive compared to anybody else in the
industry. Another way to think about this, and I think it's a good way
and you all have really started us all thinking about it, is to think
about each one of these companies in terms of kind of the sum of the
parts. Because it's no longer-- we're into a lot of different businesses
and they're hard to value when you don't think about each business
individually.
And, of course, when almost any company in the industry, when you do
the metrics, you get a value higher than it's currently trading for. And the
problem with that is, that the metrics don't work because very few
companies have any business that has, on a stand-alone basis could
actually be profitable or achieve full value. So when you're applying
that metric to a sub-optimal-type business, you're overstating the value
of that company.
But in this particular case, we don't believe that's true. We have
no less than four or five businesses here that if you look at these metrics
on a stand-alone basis can achieve full value and full profitability.
And if you apply these metrics to each one of these businesses, you'll
get something well in excess of what these companies trade for.
So putting these two companies together, two plus two is not four,
it's not five, it's not six. It's something more than that and I'm sure over
time that you'll all come to the conclusion of what this company is
really worth.
So this is what you just heard. I'm not going to go through it back
again, but just, in summary, what you heard is this is a company that has
great resources -- $4 billion a year cash flow. This is a company that
has great opportunity that will result in earnings per share growth of
over 10 percent a year. At the same time, this is a company that has an
alignment of vision, an alignment of strategy that you have never seen
before in any of these mergers.
You know, all of us spend a lot of time trying to predict the future.
And, you know, one thing we can probably all agree upon, as this industry
goes through deregulation, there is going to be a lot of misery and
there's going to be a lot of opportunity. In part, a lot of the
opportunities are going to come from the misery of others. There's no
doubt about that.
But at the same time, you know, the companies that will be successful
will be the companies that don't spend all their time trying to predict
the future, but actually go out and create the future and then manage the
unforeseen better than everybody else. And that will be this company.
In putting these two companies together, we have created the future.
We have created it-- we now control our own destiny and we will create the
future of the industry. And when all the dust is left-- settles and all
the-- we all get through deregulation, I assure you this will be the
company that is left standing taller than everybody else, because this is
a company that's in a league of its own. And we intend to execute better
than everybody else to make absolutely that it remains that way.
Now, I'll turn it back to Jim to start the questions.
J. Broadhead: Thank you.
Operator: Ladies and gentlemen, on the phone lines, if you have a question,
please press the one followed by the four 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 one followed by the three. If you are on a speaker-phone,
please pick up your handset before entering your request. Thank you, one
moment.
Unidentified Speaker: [unintelligible]
J. Broadhead: --they line the shelves. It's not the strategy that's unique,
it's the execution and I think that we have both demonstrated in our companies
that we can execute and that we will continue getting better. In fact,
looking back, I remember, I think a year or two years after FPL started
reducing its cost per kilowatt hour, we had gone from 1.18 cents down to
1.16 and in one of the security analyst meetings someone said, you know,
you've really come so far down, you're probably approaching, you know,
the bottom. What are you going to do next? We're now down around 1.07.
And we're still going down and this is what Wayne's talking about.
You get the best people, you motivate them and this is a motivating
event for our people and I think for Wayne's as well. We are going to be
executing and that's what it takes.
OK, with that, I'd love to hear your questions.
Andy Levy: Andy Levy from Credit Suisse First Boston. Congratulations, Jim
and Wayne, and definitely you've made a very compelling argument for the
merger. Just a couple of things that were left out of the handout that I
think we'd like shared with us. If you could walk us through the
financials, possibly, as far as how the numbers are going to work in `02
and beyond, earnings-wise, savings, other things that are important like
that? And also, if you can give us an idea of how long you think the
merger's going to take and also what assumptions you're making as far as
regulatory, not only approval, but if there are any rate decreases in
assumptions that you're making or any type of sharing? Anything along
those lines would be very helpful.
J. Broadhead: Let me call on Wayne for that, but to give him just a second,
when we're talking about the savings and the regulatory side, we really are
talking approximately half of them coming from labor and a little over 30
percent would be in the information technology and probably the remainder
would be procurement and other areas. And when we're talking about the
non-regulated side, we're really talking about margin enhancement as well
as cost savings.
So it's a mix of the two, as well as capital expenditure savings on
the non-regulated side. But, Wayne, you want to take a crack that?
W. Leonard: I'm not sure I can add a lot, maybe, to what you already know,
but just to maybe to re-emphasize the numbers, because the projections that
we put out, you know, and it's always in all of our best interests to err
on the side of conservatism when we do this, but, you know, we had about
$275 million of pretax synergies that have been identified that we think
are relatively low-hanging fruit before you even get into the best
practice things that Jim talked about.
Of that number, it's significant because almost half of that comes
on the non-regulated side, which we intend to start picking up immediately.
And, of course, there would be no sharing with anybody for those except
with our shareholders.
About $150 million of that is in the regulated businesses, which we
can get very quickly through various programs that we can implement during
the transition. And one of the things I want to emphasize is one of the
things that Jim's been-- I've been through this before, Jim's been
through this many times, Jim's going to focus a large amount of his
attention to the transition to make sure we do this better than anybody
else has ever done it, but when we get into the second or third year
here, we would expect, certainly, no less than $100 million after tax and
after any kind of sharing arrangements to flow right to the bottom line.
And that's in addition to the billion dollar buy-back program.
This is a substantially accretive transaction and, you know, we have
about $9 billion investment and we expect that we'll also maintain very
sound financial integrity through the same process.
J. Broadhead: Oh, can I just remind you, by the way, to-- when you ask a
question, since we have a lot of people on the telephone, to make sure you,
as Andy did, state your name and the firm that you are from, so that the
people on the telephone [unintelligible]--
John Spellman: OK. John Spellman [sp] with CIBC Work Markets and
congratulations on your transaction, first off. How, exactly, are you going
to ensure that you have the resources, the construction and the engineering
resources necessary to build out your 20,000 megawatts of non-regulated
capacity over the next couple of years? I know that you're not alone in
the industry with an ambitious program of this kind. And I guess the
second question I have is how do you intend to finance it?
J. Broadhead: Let me just mention the resources that I have to lean on--
[unintelligible] financing. I did mention, very briefly, in my comments
the-- certainly one of the skills that we're very proud of at FPL is that
we have done a very good job in overseeing the construction and being, in
a sense, the general contractor, in most cases, of the plants that we
have been building. And we have been consistently in the better group--
better quartile as far as speed of completion and as far as the plant
operating as it should and the cost per installed kilowatt hour.
And we think that the joint venture that Entergy has with Shaw,
which is a very capable company, extremely well known, certainly, in the
[unintelligible] area as a company that knows-- is very well structured
and knows how to construct things and we'll have a-- an edge. First of
all, we have our captive joint venture for the purpose of building a
plant, and it will give us an edge in the speed of completion and an edge
also in the cost of [inaudible]--
W. Leonard: Yeah, I think-- I think Jim covered that very well. I mean,
that was the basis for Entergy going out and forming the joint venture with
Shaw. Shaw-- I mean, a lot of you don't know Shaw, but, you know, Shaw
has worked on almost all the power development projects around the world.
They have some 200,000 megawatts of experience under their belt.
You know, when you get Shaw-- when you get Bechtel, what you get is
Shaw. They go hire Shaw and you pay Bechtel a premium to go hire them. And
we've hired them directly. We cut out the middle man and we're getting
their number one, two, three, four, five teams dedicated to this. Of
course, Shaw just completed their acquisition of Stone and Webster to
ensure that we also have the engineering dedicated to these 100 turbines
that we're developing. At the same time, both of the two companies also
have a great deal of experience in this area also.
In terms of financing, most of the financing is going to be done on
internal cash generation. We'll do some project financing, you know,
where it's appropriate, for example, like on a Riverside, where we're
doing 90 percent debt and 10 percent equity with the bankers. We'll sell
down some projects where that's appropriate.
But we have-- we expect to have more than enough cash to finance this
program. We have some $9 to $10 billion of investment planned and that
will come out of the internal cash generation of this company, which is
about $4 billion a year.
Paul Fremont: Paul Fremont from Jefferies. Can you discuss the consolidated
proforma targeted equity ratio and would there be additional opportunities
for share repurchase after the transaction closes?
J. Broadhead: As I remember, Wayne, we're talking about-- out in the-- when
we completed the $1 billion and when we're out in year 2003 and 4, the debt
component would be in the mid 50s--
W. Leonard: Low to mid 50s.
J. Broadhead: I forget the second part.
W. Leonard: Will we have additional buy-back opportunities?
And you know, I think that, you know, Jim and I both told you very
strongly, you've heard us both say it numerous times, that financial
integrity means a lot. When you're in a commodity business, no matter
how good you are at managing the price risk, you have to have strong
financial underpinnings in any of these companies. We intend to maintain
that and with the size of this company, having 52 to 55 percent debt and
being able to manage the price risk, on the other side, we think that's
an appropriate target to maintain.
Whether or not there's additional buy-back programs in the future,
you know, will depend upon a lot of-- a lot of factors.
J. Broadhead: We're going to be driven by shareholder value.
Greg Gordon: Hi. Greg Gordon from Goldman Sachs. Back to the-- the issue
of cash flow, one of the most compelling parts of the FPL story has been its
free cash flow, even after its maintenance and capital expenditure needs.
Can you talk about how much of that $4 billion in operating cash flow,
net of Entergy and FPL's regulated capital expenditures and the new
dividend will actually be free to pursue growth opportunities?
W. Leonard: Well, I mean, I'll take a shot at that. I mean, I can't give
you specifically, the FP&L numbers, but, you know, what we're looking at is
operating cash flow over a three-year period of time of in excess of $11
billion, of which the utility capital program, you know which I would
say, in many cases, in our case, is very conservative in that we put
quite a bit of dollars in there for system improvements that may or may
not need to happen, but if you net out the dividend and the utility
capital programs of about $6 billion, so that still gives you $5 billion
of free cash flow, after the utility and after the dividend, over that
three-year period of time. It's a big number.
J. Broadhead: I think it's also possible that as restructuring takes place
[inaudible] to satisfy FERC and market power, we may be required to sell
some of the capacity. And that's very valuable capacity that we have
that Wayne talked about. So that would be another source of a
significant amount of cash [inaudible]--
W. Leonard: You know, just to add on to that, you know, of course, we're
going through deregulation in Texas and Arkansas, we have the opportunity to
securitize any stranded assets in both of those two states and we filed
some fairly big numbers in both of those two states as far as what that
stranded asset number might be. And we're-- we are, at least by law,
guaranteed to be able to cover that and securitize it.
Paul Patterson: Paul Patterson, CSFB. I was wondering if you could just
elaborate a little bit more on the sharing that-- that might be requested
on the part of regulatory commissioners and what your assumptions are
with respect to the respective states? As well as, goodwill is-- is the
goodwill locked in based on Entergy's current stock price or if Entergy's
stock price goes up, does that-- does that change it at all? Or if you
could just sort of elaborate a little bit on that, as well, those two
questions, particularly the sharing?
W. Leonard: Yeah, I believe the goodwill is locked in as of this point in
time at book value, so there wouldn't be any. With regard to the sharing, you
know, I don't want to put a stake in the ground today to negotiate with
regulators, but you've all seen all the transactions and in most of the
transactions, regulators have typically been very fair with wanting half
of-- something around half of the non-fuel O&M savings.
We have somewhat of a track record with the AEP/CSW merger going
through three of our states already and they've been very fair, I think, to
AEP in that regard. They want service reliability standards put in place,
they want a share in the savings with a tracker or maybe a rate freeze.
But the important thing to keep in mind is half of these savings that
we're talking about is the non-regulated piece of our business and that
flows right to the bottom line, regardless of what happens on the
regulatory front.
Jay Dobson: Jay Dobson with Donaldson, Lufkin and Jenrette. Three questions
if I could. First, could you talk a little about the transmission
interconnection that you'll have to establish, either contractually or
physically under the Public Utility Holding Company Act and how you'll
complete that? Second, if you could just describe the break-up fees as a
part of the merger agreement? And third, just describe a little more of
the stock buy-back program, when you believe you can begin buying back
stock, how fast you expect to complete the two programs? And, I guess,
just for clarity, I assume both these programs are in addition to both
companies' existing programs? Thank you.
J. Broadhead: Perhaps I can comment on the transmission interconnection.
Obviously, as you know, in order to satisfy the requirements of the
Public Utility Holding Company Act, we have to have an efficient
interconnection. And we would be required to have an interconnection
that would run through the territory of the Southern Company. We have
already filed for that. It appears to be available and Southern Company
is required by rules and regulations to make it available, so we don't
anticipate there are any problems with that at all.
The contracts provide for a breakup fee of, I think, $250 million
plus $25 million in expenses going both ways. You might want to comment on
the breakup and the stock buy back.
W. Leonard: Yeah, the buy back is not in addition to what we already have
in place. It includes the remaining amounts we currently have. So for
Entergy, we originally had a $750 million buy back. We have about $130
million left, our portion of the buy-back allocation was around $430
million, so you take $130 that we want to get done this year, at a
minimum, so then we have $300 to get done next year, because we want to
close this transaction within 15 months. So this is going to be a pretty
rapid program for Entergy and it's about $430 million and we got to get
rolling in order to get accomplished by the time the merger closes.
Terry Shuh: Terry Shuh, J.P. Morgan, can you elaborate a bit more on the
regulatory approval process, which you said would probably be around 15
months, with regard to the FERC and also, the FTC is current reviewing
the DTE/MCN merger? Are there any competitive issues? I think, Jim, you
talked about, perhaps, the need to sell down some of your capacity to
satisfy FERC or FTC and if you could elaborate on that point?
J. Broadhead: Terry, thank you, I didn't mean to imply -- I'm glad you raised
that in order to get this deal done we would need to sell down. What I meant,
as restructuring goes ahead some of the space and as you want to be able
to sell to your own distribution company, for example, at market-based
rates, you will have to satisfy or you may have to satisfy FERC as far as
so-called market power issues. And at that time, there could be some
selling down, but we don't anticipate that there will be any request by
FERC to sell assets in connection with this transaction.
The regulatory approval process, again, the attorneys that we have
retained believe that this is a very straightforward thing and,
fortunately, some of the other companies have blazed the trail and the
SEC and FERC both seem to be proceeding with relative alacrity compared
to the way things were several years ago.
W. Leonard: Yeah, and I think the issue still that comes up in our states,
because we have five jurisdictions to get through, including the City of
New Orleans, and then, like Jim mentioned, the attorneys are very
confident that there are no issues, virtually, at the SEC or at FERC.
There's no market power issues or any of the other things that typically
get people hung up.
The AEP situation, you know, we could discuss why it took them so
long. But in part, it took them so long because they tended to do these states
sequentially instead of all at once and, you know, in our case, we have
CEOs of each one of our jurisdictions that run the business in the
jurisdiction and are the CEO as far as the regulators are concerned.
We'll run them all simultaneously and we'll have a bake-off to see who
can get it done quicker and keep more of the savings.
And we've already talked to all of our regulators. We accomplished
that last night. We had very positive response from our regulators and,
frankly, in most of the jurisdictions they have so many things to do,
particularly in Arkansas where they're trying to get through
deregulation, get through all the things they have to do by 1-1-2000, you
know, they're interested in finding a quick solution to this. And we're
going to offer them up some pretty quick solutions consistent with what
they've done in past practice, consistent with the reliability assurances
and just what they all brought up to us, just assure us that reliability
will be maintained, and that's what we told them.
A. Levy: It's Andy Levy, again, with Credit Suisse First Boston. I'll try
to ask my question more directly. In 2002, obviously, you hope will be the
first year out of the merger, call it the first full year for argument's
sake. FPL's consensus is about $5 a share, I would guess, last I looked,
something like that. Where do you guys expect your earnings to be in
`02? And then, obviously, you said you were going to grow 10 percent off
that. But what base are we looking at, how to value this stock or both
stocks?
J. Broadhead: You're talking about where do we guys, meaning the new co,
expect the earnings to be in `02? I don't have a number for what the
earnings are likely to be.
W. Leonard: No, I think if you're-- I mean, in terms of valuing it from
an FP&L perspective, if you take the buy back in place and the synergies and
the allocation of the synergies, I mean, you're looking at accretion for FP&L
that is, when we say substantial, I mean, we're talking about very, very
big numbers into that-- into, you know, maybe as much as 70-80 cents a
share with the buy back and the earnings going to the bottom line. It's
a big number.
A. Levy: OK. So just that we understand each other, you're saying on the $5
number for FPL in 2000, first full year of the merger you see 70-80 cents
accretion to that $5 number? Is that what you just said?
W. Leonard: Yeah.
A. Levy: Thank you.
J. Broadhead: We have some questions on the phone, apparently.
Operator: Your next question is from Kit Konolige from Morgan Stanley. Please
proceed with your question.
Kit Konolige: Good morning, gentlemen, congratulations on a huge deal. A
couple of questions, kind of following up on some others. The first would be
could you detail for us a little bit what are the drivers of the 10
percent-plus growth that you see coming out of the box for the new
company? And secondly, could you just give us an idea of what sorts of
discussions you've had with regulators and other political types in your
states and what their reaction has been?
J. Broadhead: Maybe I can take the first part and you take the second part,
unless you want to take the first part? Well, the drivers of the 10 percent
growth we already talked about some of the synergies and these are
substantial numbers that we're really talking about as far as savings.
But on top of that, and I think the most important factor, really,
is not just the savings, but the businesses for both of our companies that are
growing most rapidly really are the independent power businesses we have.
And by putting these two businesses together, we are going to have, in
spades, the critical success factors and much greater opportunities, much
great optionality that will lead to, I think, significant revenue
enhancements as well as unit cost reductions all across the line.
So I think it's that new powerful company and the skills it has, as
well as the normal synergies and savings that one would get.
W. Leonard: The second part was the political--
K. Konolige: That's right.
W. Leonard: --the political reaction? I think, you know, again, the most
sensitive for us is the City of New Orleans and, as all of you know,
that's important because we're headquartered there and it's important
because we're regulated there also, by the city council. We talked to
all of the city council members yesterday. I personally talked to the
head of the utility committee, who really makes the decisions on the city
council with regards to these issues. I talked to the mayor yesterday
and they were all very, very supportive.
The comments in the paper this morning in New Orleans was that they
were going to reserve judgment until they actually see facts, but on a
personal basis, they understand the way the world is, you have to grow or
get eaten. There was a lot of concern, frankly, that we would be taken
over by an out-of-country utility or something and they would lose all
corporate headquarters, all jobs in New Orleans. So they were very
supportive of the fact of keeping the utility headquarters there. It
means a lot of the community.
The newspaper this morning in New Orleans ran a very, I think, a
very fair story. The headline was very good. The story focused on the
benefits and, of course, it carried some of the social issues with
concern about support for the community and loss of a Fortune 500
company, but on balance it was the best possible story, I think, that we
could have expected.
And the elected officials have been-- we've gotten very good, at
least up until now, nobody has stepped out and tried to make this a political
issue. They've remained relatively neutral.
Andy, back to your question, and you know, you mentioned the $5
estimate on FP&L. I can't confirm that number. I'm not sure what it is.
When I was giving you a number of that 70-80 cent range, that's off whatever
consensus is and I just assumed that you've got the right numbers.
J. Broadhead: Is there another question from the telephone?
Operator: Your next question is from Amy Dobson from Morgan Keegan. Please
proceed with your question.
Amy Dobson: Good morning. I was wondering if you could talk about the
specifics of the Entergy-Shaw joint venture. Is it the intent of the combined
company that the existing FPL projects are going to flow through the
joint venture in the same capacity that the Entergy projects are slated
to?
J. Broadhead: I didn't quite get all that. That was breaking up a little bit.
A. Dobson: OK. Let me repeat that. I was wondering about the specifics
on the Shaw-Entergy joint venture. It is the intent of the combined company
that the existing FPL projects will, and any projects going forward, will
flow through the joint venture in the same capacity that the Entergy
projects are slated to?
J. Broadhead: We want to use the best assets we have. That's the way we're
going to be very successful. And I think-- I see no reason why, when we are
buying a-- or building a plant from the ground up, we shouldn't use the
Entergy-Shaw venture and that may incorporate some of our people in it as
well. We're trying to build one team and, as Wayne said, we'd like to
get some of this stuff going faster, not waiting for the final approvals
and I think we can do many of those things -- joint projects, joint
bidding, joint use of the trading facilities, because we're not waiting
for regulators on the unregulated side.
W. Leonard: You know, when we used Shaw as a test case, actually, on our
Freestone [sp] project and Shaw, you know, by developing a footprint,
standardized footprint for these GE turbines, using a standardized
technology, using the same teams over and over again, having their own
engineering and our own expertise, we expect to see a 15 percent cost
reduction on building these plants compared to our competitors through
this venture. And most certainly there will be people at FP&L that will
become part of this venture that they're already using, just as there
will be Entergy people.
But the central focus of it, of course, will be the Shaw and the
Stone and Webster and dedicated footprint for these-- for these new projects to
produce, fill power projects that are substantially more competitive than
anybody else has in the market today.
A. Dobson: OK. Thank you.
Operator: Your next question is from Karen Roth from UBS Warburg. Please
proceed with your question.
Karen Roth: Hi. I had a little trouble hearing the answer to the capital
structure. Did you say 52 to 55 percent by `03-'04 time frame?
W. Leonard: Yeah, we expect to maintain 52 to 55 percent over the five to
10 year horizon. That's our target level. That's consistent with a very
aggressive build program and with the cash flows that we have generated
internally.
K. Roth: OK, what would your leverage be immediately, close of transaction?
J. Broadhead: I'm sorry. We didn't hear what you said.
K. Roth: What will the leverage be immediately upon closing of the
transaction?
W. Leonard: I'm sorry. We're still not quite getting that question. The
leverage?
J. Broadhead: Leverage. [unintelligible]
W. Leonard: I think we're getting the advice that it's the low 50s. I don't
have that number in front of me, but I'm getting-- I have pretty good
advice that's being given to me, so I think that's probably correct.
K. Roth: OK. And of the 6.3 million customers, how many are gas?
W. Leonard: That's 6.3 million, I think, electric customers. In addition to
that, then we have the gas customers in Baton Rouge and New Orleans and I
don't have that number in front of me. About 200,000 gas customers, in
addition.
K. Roth: OK. Thanks.
J. Broadhead: We have a question inside here?
Annie Tsao: This is Annie Tsao from Alliance Capital. A couple questions.
Did you have any previous conversation with the SEC for this announcement and
what's their reaction? And when are you planning to file? Are you
planning to file as soon as possible? And also, can you talk about your
dividend policy and the changes to that? And also, organization,
structure changes?
J. Broadhead: Well, as far as the SEC is concerned, I believe attorneys spoke
on a no-name basis with the SEC, but certainly not on a names basis. But we
don't anticipate any problems. The SEC doesn't care much about PUHCA any
way and they have, as you know over the last several years, made it
easier and easier to do deals within the scope of the Public Utility
Company Holding Act. So I don't think there's going to be any problem
with the SEC.
As far as dividend policy, the new company is going to be,
essentially, adopting the dividend of FPL. Whenever the closing takes place,
the dividend that FPL has will be the dividend for the new company. So that
will mean, for example, if the closing took place in three months, which
occasionally I have dreams like that and it makes me very enthusiastic,
then each shareholder of FPL would retain the dividend that he was
getting under FPL Group and I believe through the exchange ratio, the
shareholders of Entergy would have an increase in dividend from something
like $1.20 to $1.26, I believe, in that range.
The other question?
W. Leonard: How soon we're going to do proxies and shareholder vote? I
mean, I think that was the question. We're expecting to be able to get the
proxy-- we hope to get the proxy out within the next 30 days or so and have a
road show this fall and shareholder vote this year.
G. Gordon: Greg Gordon with a follow-up question. I know we've got a long
way before this deal gets closed, but strategically, looking at your
unregulated business, I mean, combining these two businesses gives you
critical mass, looking out to 2004 you'll be as big an unregulated
portfolio of business with as robust a marketing and trading effort as
probably anyone in the industry. And you also mentioned yourself that
the sum of the parts very rarely gets valued into the value of the stock
without a formal type of separation. Given that deregulation's moving
pretty slowly in your states for reasons that you've already talked
about, you know, how focused are you guys on sort of the next long-term
strategic step, given that the pure plays in this industry trade at, you
know, three times the value of the conglomerates?
W. Leonard: Well, I can give you a short answer to that from my new boss
here, because last night when we talked about this issue that we're going to do
the right thing by shareholders, whatever that is. And, you know, we
think that, like I said, all these businesses on a stand-alone basis have
critical mass. They can achieve full profitability, full value on either
a stand-alone basis or as a combined part of the new company. And we'll
make the best decision for our shareholders when the time comes.
I mean, our immediate objective is to, hopefully, show and
demonstrate to the market place the value of all these parts in the new
company and how we separate them or keep them together, we'll make that
decision in time.
J. Broadhead: I'm told we have time for one more question.
Margaret: This is Margaret [unintelligible] with Lazard. I have two questions,
please. First, can you discuss the timing of the benefits of the fiber
optics management at FPL having an impact at Entergy Group? And
secondly, can you discuss the impact of the deal on your respective plans
to create regional transmission companies?
J. Broadhead: You want to take the first part?
W. Leonard: OK. You know, we've already started the discussion with the FPL
people with regard to what they would do with our fiber optic route and
capacity. We've already started the discussion with Koch with regard to
trading bandwidth.
Now, I can't give you an estimate or a prognosis with regard to what
they will tell us. Koch is very enthused about having these underlying
physical positions and then be able to trade bandwidth around those
physical positions. I think FP&L Group-- this is something they wanted
to get started for some time and were concerned about having, actually,
the trading capacity to do it.
So that will probably be something that will happen very quickly.
What will happen with regard to Entergy's current systems, we'll just have to
wait and see how the business plan turns out.
J. Broadhead: Well, both of us have already expressed our positions on the
FERC's requirement to have an RTO and we both favor strongly TransCos because
we believe that the public will benefit by having as much market-based as
possible and I don't know any reason why this should, in any way, slow
that down. Do you, Wayne?
W. Leonard: No.
J. Broadhead: So I think that will be it. Thank you all for coming. Let's
just say again, I think you can see how enthusiastic the two of us are and I
can tell you that the senior management of both our companies and our
boards of directors share that enthusiasm. We really feel we're creating
the premier electric power company in the country and this positions us
for tremendous success and the creation of great shareholder value in the
future.
We sure appreciate your coming. Anything [inaudible]
W. Leonard: Thank you.
[applause]
Operator: Ladies and gentlemen, that does conclude your conference call for
today. We thank you for participating and please disconnect your lines.
<PAGE>
The Transcription Center
12110 N. Pecos Street
Westminster, CO 80234-2076
IMPORTANT INFORMATION REGARDING YOUR CONFERENCE CALL
We encountered the following in your conference call:
x We did not have a complete list of all persons who were on the
conference call, including V.P's, C.E.O's, C.F.O's, Controllers
and Treasurers. Consequently, we spelled those names
phonetically. To ensure accuracy of all participants, you can
fax Keith Endres, our transcript coordinator a typed list of
all participants, including first and last names and company
name, if applicable, to 303-633-3879, or e-mail this
information to him at [email protected]
_____ In transcripts we try to utilize last names to provide a more
accurate account of who said what, which can be important if
there are several people with the same first names. This call
involved participants who did not identify themselves each time
they spoke. For that reason, you will find "Response" versus
a name in the transcript. If participants identify themselves
each time they speak, you will receive a more accurate
transcript.
x In this transcript, several terms were spelled phonetically.
To ensure accuracy in future calls, you might want to fax us a
list of technical terms unique to your business or industry.
This is especially helpful with acronyms -- pronunciations and
accents vary widely and quite often "n" and "m," "b" and "t,"
and "c" and "p" are difficult to distinguish on tape.
_____ Some participants tended to "talk over" one another, which
means we missed vital conversation due to our inability to
distinguish one conversation from another.
_____ Participants did not speak directly into the telephone or
microphone and could not be heard at all times. Conferences
held with several participants in one room around a single
phone or microphone make many difficult or impossible to hear.
____ Speaker phones and/or headsets reduced the quality of some
participants.
_____ Outside interference in the form of paper shuffling, side
conversations, etc., created distortions in some of the voices.
_____ Other__________________________________________________________
At points of the call that were inaudible, we have put a note either
stating [inaudible] or [unintelligible] or denoted by a short blank
line. Names not appearing on our list of participants are queried with
[sp] on first reference.
Thank you. We appreciate the opportunity to be of service to you.
If you experience any problems or have any questions about your
transcript, please contact:
Keith Endres, Transcription Coordinator
303-633-3879
This document is being filed pursuant to rule 425 under the
securities act of 1933 and deemed filed pursuant to rule 14a-12 under
the exchange act of 1934. This document does not constitute an offer
of sale of securities.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with the proposed merger, FPL Group, Inc. and Entergy
Corporation 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 FPL Group, Inc. and Entergy Corporation 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 the FPL Group's filings may be
obtained by directing a request to FPL Group, Inc., 700 Universe
Blvd., P.O. Box 14000, Juno Beach, FL 33408-0420, Telephone: (561)
694-4000. Free copies of Entergy's filings may be obtained by
directing a request to Entergy Corporation, 639 Loyola Avenue, New
Orleans, Louisiana 70113, Telephone: (504) 576-4000.
PARTICIPANTS IN SOLICITATION
Entergy Corporation and their respective directors, executive
officers and other members of their management and employees may be
soliciting proxies from their respective stockholders in favor of the
merger. Information concerning Entergy's participants in the
solicitation is set forth in Entergy's Current Report on Form 8-K
filed with the Commission on July 31, 2000.
