- ------------------------------------------------------------------------------
SCHEDULE 14A
(Rule 14A-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant|_|
Filed by a Party other than the Registrant |X|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of
|_| Definitive Proxy Statement the Commission Only
|_| Definitive Additional Materials (as permitted by Rule 14a-6(e)(2))
|X| Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 14a-12
IES INDUSTRIES INC.
(Name of Registrant as Specified in Its Charter)
MIDAMERICAN ENERGY COMPANY
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(I)(1), 14a-6(I)(2) or Item
22(a)(2) of Schedule 14A.
|_| $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(I)(3).
|_| Fee computed on table below per Exchange Act
Rules 14a-6(I)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number,or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- ------------------------------------------------------------------------------
[Letter Dated August 4, 1996 to Lee Liu]
[Letterhead of MidAmerican Energy Company]
August 4, 1996
Mr. Lee Liu
Chairman of the Board, President
& Chief Executive Officer
IES Industries Inc.
IES Tower
200 First Street, SE
Cedar Rapids, IA 52401
Dear Lee,
You will recall that in August 1995 we discussed with you a possible
business combination between our respective companies. Following that
discussion, by letters dated October 3 and October 10, 1995, we attempted to
commence a dialogue regarding the benefits of such a combination, which you
rebuffed. Our efforts to discuss a business combination with you culminated in
our October 23, 1995 request, acting in accordance with an August 16, 1993
standstill agreement, for permission from your board to propose a business
combination between our respective companies. You refused to permit us to make
our proposal. A copy of the October 1995 correspondence is attached. We were
disappointed when you announced two weeks later that you had entered into your
proposed transaction (the "Wisconsin Transaction") with WPL Holdings, Inc. and
Interstate Power Company because that transaction included terms less favorable
to IES Industries Inc. ("IES") and its shareholders than those we had proposed,
including a notable reduction in your dividend.
We have continued to be interested in a business combination with IES, and,
as I am sure you are aware, the standstill provisions terminated on August 1,
1996. Following the publication of the proxy statement for the Wisconsin
Transaction, we have undertaken a further and detailed review of the benefits
from a combination of our companies and have compared those benefits to those
that would result from the Wisconsin Transaction. We strongly believe that a
combination of our companies will result in significantly greater benefits for
the respective shareholders, customers and employees of both companies and for
Iowa than would the Wisconsin Transaction.
<PAGE>
Mr. Lee Liu
August 4, 1996
Page 2
Accordingly, the MidAmerican Energy Company ("MidAmerican") Board of
Directors has approved and authorized the submission of the following merger
proposal:
IES would merge with and into MidAmerican or with a subsidiary of MidAmerican in
a transaction in which the aggregate consideration will be 40% cash (or less if
your shareholders so elect) and the remainder in MidAmerican common stock, to be
allocated in accordance with customary election and allocation procedures to be
set forth in the merger agreement. IES common shareholders receiving cash will
receive $39 per share and IES common shareholders receiving stock will receive
2.346 shares of MidAmerican common stock (worth $39 per share based on the
closing price on August 2, 1996) for each share of IES common stock. We have
sufficient resources to meet the financial obligations resulting from our
proposal.
Our merger proposal is significantly superior to the Wisconsin Transaction
in every important respect:
* Based upon closing stock prices for Friday, August 2, 1996, our
proposal represents a 31% premium above the IES common stock price, as
compared to only an 8% premium from the Wisconsin Transaction -- our
proposal therefore offers a 21% premium ($6.81 per share) above the
implied value of the Wisconsin Transaction.
* Our proposal includes a pro forma dividend of $2.82 per IES share, a
34% increase above IES's current dividend rate, as compared to the pro
forma dividend in the Wisconsin Transaction, which reduces IES's
current dividend rate by 5% -- our proposal therefore offers a
dividend which is $0.83 per share or 42% higher than in the Wisconsin
Transaction.
* Our proposal gives IES shareholders a choice of cash or, on a tax-free
basis, stock in a combined company that we believe will be a stronger
and more highly competitive total energy provider for the region.
Some of the other major benefits of our proposal include:
<PAGE>
Mr. Lee Liu
August 4, 1996
Page 3
* A commitment to the maintenance of our current dividend rate with
declining payout ratios targeted at 80% by the year 2000.
* Immediate substantial accretion to earnings per share for IES
stockholders.
* More than $500 million in cost savings during the first ten years
following consummation. These savings will result principally from IES
and MidAmerican's contiguous and overlapping service territories and
joint ownership of generation and transmission facilities.
* A proven track record of successfully integrating mergers, including
expeditiously obtaining regulatory approvals, so that shareholders and
customers may promptly realize merger related benefits.
* The opportunity for IES customers to benefit from MidAmerican's
innovative electric pricing proposal that offers: 1) price reductions
for certain customers; 2) no future rate increases through 2000; and
3) the flexibility to negotiate price and terms of service with
industrial customers.
Our proposed merger agreement will include the same representations and
warranties and substantially the same applicable terms, conditions and covenants
as the Wisconsin Transaction merger agreement, reflecting a tax-free structure
with respect to the stock portion of the consideration, except that (1) IES
stockholders will be able to elect to receive a cash allocation, (2) the
headquarters of the combined company will be in Des Moines, Iowa and the
combined company will continue to maintain a significant presence in Cedar
Rapids, (3) our proposed transaction will be accounted for as a purchase rather
than a pooling of interests. The Board of the combined company will include
directors from IES.
Our proposed merger will create a larger company with a regional growth
strategy starting from an Iowa base. Therefore, we intend to enhance our good
business relationships with other energy providers in Iowa. Synergies will
require employment adjustments in either transaction. However, we would seek
<PAGE>
Mr. Lee Liu
August 4, 1996
Page 4
to accomplish these adjustments by normal attrition and programs such as early
retirement. Our commitment to local and regional business growth will contribute
to higher employment for the economy of Iowa than the Wisconsin Transaction. The
combined company will be in a better position to promote economic and civic
development throughout the IES service area and Iowa.
Our ongoing pursuit of a business combination between our two companies is
driven by our genuine belief that IES and MidAmerican now have an extraordinary
and timely opportunity to build on our mutual strengths. The benefits we have
identified for shareholders, customers, employees and Iowa makes this a unique
opportunity for both IES and MidAmerican.
Our offer is, of course, contingent upon receipt of all necessary approvals
from shareholders and from regulatory and other governmental agencies. We will
file as soon as practicable applications with the appropriate federal, Iowa and
Illinois regulatory agencies seeking approval of our proposed business
combination. We believe that we could obtain all requisite regulatory approvals
within 12 months after execution of the definitive merger agreement, which we
are prepared to execute immediately. We have instructed our legal counsel
Sullivan & Cromwell to prepare a draft of the merger agreement. Please contact
them if you wish to review a copy of that draft.
We appreciate that you will be required to present our merger offer to your
Board of Directors for its careful consideration. We feel that after such
consideration, your Board will agree with us that our merger offer is (1)
financially superior to the Wisconsin Transaction (2) better for customers and
employeees of IES and (3) better for Iowa, and that your Board, consistent with
its fiduciary obligations recognized under Section 10.1(e) of the Wisconsin
Transaction merger agreement, should accept our proposal. We are also prepared
to meet with you or with you and your directors to discuss our merger offer and
to answer any questions you or they may have.
As I am sure you can appreciate with a proposal of this sort, time is of
the essence. Accordingly, we would appreciate hearing from you as soon as
practicable. If we cannot promptly reach an agreement with respect to a business
<PAGE>
Mr. Lee Liu
August 4, 1996
Page 5
combination between our companies, we intend to solicit proxies against the
Wisconsin Transaction for use at the upcoming meeting of IES shareholders
presently scheduled to be held on September 5, 1996.
We look forward to the completion of the mutually beneficial combination of
our companies.
Sincerely,
cc: Board of Directors of IES Industries Inc.
<PAGE>
[Letterhead of MidAmerican Energy Company]
October 3, 1995
CONFIDENTIAL
------------
Mr. Lee Liu
Chairman and CEO
IES Utilities Inc.
200 First Street, SE
Cedar Rapids, Iowa 52406
Dear Lee:
You will recall the conversation we had following the August meeting of
the McLeod Board in Cedar Rapids. I have discussed our conversation with Stan
Bright and he shares my thoughts. You and I were both somewhat rushed so we wish
to take this opportunity to express our conviction that combining our two
companies will result in significant savings and benefits.
As I recall, you indicated that your Board of Directors wanted you to
concentrate on your restructuring of IES, and that a discussion between us was
not timely. We would urge you to consider a strategic restructuring process
through a combination of IES with MidAmerican Energy Company as part of your
strategy. We have shared these thoughts with the Executive Committee of our
Board. They have expressed great enthusiasm for the combination we are proposing
and we assume your Directors will also be enthusiastic.
The activity around us with the NSP/Wisconsin Electric and Union
Electric/Central Illinois merger announcements brings close to home the arrival
of some very large players in the upper midwest as mergers have begun to
transcend state boundaries and contiguous service territories.
When discussions were held to consider exchange of properties between IPS
and IES, it was apparent that there are significant opportunities for increased
efficiencies because of overlapping and contiguous service territories. A strong
Iowa-based utility resulting from the combination of our current companies can
bring much greater value to our customers and our shareholders. We can continue
to have a major impact on the economy of Iowa
<PAGE>
Mr. Lee Liu
October 3, 1995
Page Two
and make sure that we play an integral part in the growth of existing industry
as well as attracting new business.
Our two companies have a strong utility infrastructure, competitive
electric production costs, and a highly efficient delivery system. With the
restructuring each of us are going through we should be poised for very strong
performance in creation of value. MidAmerican Energy has identified well over
$500 million of savings and has already begun to realize these benefits. These
results are indicative of the magnitude of the potential benefits we could
expect to realize by concluding the suggested transaction.
We believe a combination of our two fine companies is the right thing to
do and that discussions would lead to a concluded transaction. Our discussion
should consider the strategic vision we each have for our companies as well as
the basic principles that would be necessary for us to consider moving forward.
We are prepared to move very quickly to reach an agreement and to conclude a
transaction. Both companies have a proven track record in these types of
transactions.
As you know, we have demonstrated a strong commitment to the communities
we serve and to economic development throughout our service territory. We
observe a similar commitment at IES.
Lee, your leadership has been appropriately recognized in Cedar Rapids and
throughout Iowa because of the strong support you have given to Iowa business
development. It is our opinion that a combination of our companies would further
enhance that support and your leadership.
If we seem impatient, it is because of a sense of urgency that is enhanced
with each major utility merger announcement. When the dust settles we would like
to see an Iowa-based utility emerge as a strong regional force in the industry.
We will give you a call to set up this meeting.
Sincerely,
/s/ Russell Christiansen
/s/ Stanley J. Bright
<PAGE>
[Letterhead of IES Industries]
IES Industries Inc.
200 First Street S.E.
P.O. Box 351
Cedar Rapids, IA 52406-0351
Telephone 319 398-4411
Fax 319 398-4483
Lee Liu
Chairman of the Board, President
and Chief Executive Officer
October 6, 1995
Mr. Russell E. Christiansen
Mr. Stanley P. Bright
MidAmerican Energy Company
P.O. Box 9244
666 Grand Avenue
Des Moines, IA 50306-9244
Dear Russ and Stan:
Thank you for your letter of October 3, 1995 and your kind comments about me and
IES Industries Inc. I have discussed your letter with members of our Board of
Directors. At this time, our company is not interested in entering into
discussion with you relative to a possible combination transaction. Should these
circumstances change, please be assured that I will contact you.
Sincerely
s/s Lee Liu
<PAGE>
[Letterhead of MidAmerican Energy Company]
MidAmerican Energy Company
666 Grand Avenue
P.O. Box 657
Des Moines, Iowa 50303-0657
October 10, 1995
Mr. Lee Liu
Chairman and CEO
IES Industries
200 First Street, SE
Cedar Rapids, Iowa 52406
Dear Lee:
We appreciate your prompt response to our letter of October 3. We
understand the decision that you and members of your Board have reached not to
enter into discussions with us relative to a possible combination of our two
companies at this time. We are encouraged by your willingness to discuss a
merger if circumstances change.
Our keen interest in having discussions with you at the earliest possible
time reflects our deep conviction that a combination of IES and MidAmerican
would create great value for the shareholders of our two companies. Thus, we
will continue to review and analyze the benefits of the merger we have proposed.
As we complete this work we will be in a position to discuss our proposal with
you.
Sincerely,
/s/ Russel Christiansen
/s/ Stanley J. Bright
<PAGE>
[LETTERHEAD OF MIDAMERICAN ENERGY]
MidAmerican Energy Company
666 Grand Avenue
P.O. Box 657
Des Moines, Iowa 50303-0657
CONFIDENTIAL
October 23, 1995
Mr. Lee Liu
Chairman and CEO
IES Industries Inc.
200 First Street, SE
Cedar Rapids, IA 52406
Dear Lee:
As indicated in our October 10, 1995 letter to you, we have been reviewing
and analyzing the potential benefits that would result from merging our two
companies. Our initial review, using publicly available information, confirms
our belief that combining IES and MidAmerican makes good sense. Shareholders,
customers and communities served will derive great benefits from such a
combination.
The experience we have gained through our past successful mergers has
demonstrated to us the value of informal discussions prior to serious
negotiations of key merger issues. Such discussions between Chief Executive
Officers generally result in an understanding of the vision and expectations as
well as the strategy of each organization. As a result, it is possible to
develop the underlying principles that ultimately guide the way to a successful
merger. Although we have been disappointed that we have not had an opportunity
for such discussions with you, we remain firmly convinced that the combination
of our two companies to form a strong gas and electric utility is the right
thing to do.
Here is our reasoning:
* There are very significant opportunities for increased efficiencies
because of our contiguous and overlapping service territories. Our
common presence as energy service providers in Cedar Rapids,Ottumwa,
Storm Lake, Carroll, and other Iowa communities present many
opportunities for savings. See attached map.
<PAGE>
Mr. Lee Liu
October 23, 1995
Page Two
* Our generation facilities are strategically located and supported by
a strong transmission system that would integrate into a low-cost
highly reliable electric energy supply for all of the customers of
IES and MidAmerican.
* Our common focus on meeting the full energy needs of customers will
enable us to jointly develop additional products and services which
will be the foundation of success in the new, competitive market.
* The gas distribution systems' geographic locations are situated to
provide optimum service response time for emergency and routine
customer service.
* Electric distribution service centers for our rural and small
communities could be strategically located to improve customer
service response time at lower cost.
* These factors, as well as a number of others, lead us to the
conclusion that our merged company would be a strong and highly
competitive total energy provider for the region.
As you can see, a unilateral assessment with the benefit of external legal
and investment advisors of the benefits of a merger creates an impressive list
of opportunities. We know that you and your team could quickly add many more
opportunities to the list.
Based upon these points, and those we have mentioned in our letters to you
of October 3 and 10, 1995 (copies attached), we believe it is appropriate for us
to become more specific and definitive. Thus, on behalf of the Board of
Directors of MidAmerican Energy Company, we ask that you request your Board
grant us permission to make the following offer:
* MidAmerican and IES merge our two organizations after receipt of all
appropriate approvals.
* The transaction be structured as a merger of equals, recognizing
appropriate differences in size, market value of common stock, total
assets, etc.
<PAGE>
Mr. Lee Liu
October 23, 1995
Page Three
* The exchange ratio of common stock be established to provide a
premium to IES shareholders of 15% over its $26.875 market value at
closing on October 20, 1995. (Values are premised and conditioned on
29,290,660 outstanding shares of IES common stock.) The exchange
ratio would also result in higher dividends, greater earnings per
share and a lower payout ratio for the IES common shareholders.
* The combined company will continue to maintain a significant and
appropriate presence in Cedar Rapids.
* IES shareholders will have appropriate representation on the Board
of Directors.
* The structure of the company could be organized as an exempt holding
company.
* We would begin immediately to negotiate a definitive agreement, with
terms and conditions as the respective parties deem appropriate.
* Our proposal is conditioned upon completion of due diligence
satisfactory to each party.
* This proposal may be withdrawn by MidAmerican Energy Company at any
time.
Our request is made in the spirit of a genuine belief that IES and
MidAmerican Energy Company have an extraordinary and timely opportunity to build
on our mutual strengths. Because of our contiguous and overlapping service
territories, this combination produces unique opportunity for both IES and
MidAmerican Energy.
Lee, we urge you to meet with us to discuss our request. We are convinced
that meaningful discussion will result in a dynamic new enterprise that will
provide outstanding value to our customers and our shareholders.
Sincerely,
/s/ Russell E. Christiansen
/s/ Stanley J. Bright
<PAGE>
[LETTERHEAD OF IES INDUSTRIES]
200 First Street S.E.
P.O. Box 351
Cedar Rapids, IA 52406-0351
Telephone (319) 398-4411
FAX (319) 398-4483
Lee Liu
Chairman of the Board, President
And Chief Executive Officer
October 26, 1995
Mr. Russell E. Christiansen
Mr. Stanley P. Bright
MidAmerican Energy Company
P.O. Box 9244
666 Grand Avenue
Des Moines, IA 50306-9244
Dear Russ and Stan:
In view of our earlier correspondence, I was somewhat surprised to receive your
letter of October 23, 1995. However, please be advised that our Board of
Directors will consider the matters raised by your letter at its next regular
meeting in early November. I will contact you after that time. Until then, we
are not interested in participating with you in any discussions relating to a
business combination transaction.
Very truly yours,
/s/ Lee Liu
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[MidAmerican Fact Sheet]
MIDAMERICAN ENERGY COMPANY
KEY FACTS
Overview
MidAmerican Energy Company, with assets of $4.5 billion and annual revenues
of $1.7 billion, is Iowa's largest utility company, serving a population of 1.7
million in 550 communities across four Midwestern states, covering 10,600 square
miles from the Missouri to the Mississippi River and beyond.
MidAmerican provides electric service to 635,000 customers and natural gas
service to 600,000 customers, including almost all of Iowa's major communities,
as well as communities in Illinois, Nebraska and South Dakota.
MidAmerican, with 70,000 shareholders and 100 million outstanding common
shares, was formed July 1, 1995 by the merger of Midwest Resources Inc. and
Iowa-Illinois Gas and Electric Company. The merger, announced on July 27, 1994
was completed in only 11 months. Total savings from that merger are estimated at
greater than $500 million over 10 years, and the Company was able to trim its
1996 capital budget by 20% over the prior year.
MidAmerican has total capitalization of $2.8 billion and nearly 3,600
employees. The electric business unit is headquartered in Davenport, Iowa and
the gas business unit is headquartered in Sioux City, Iowa. Corporate
headquarters are in Des Moines, Iowa.
MidAmerican has two wholly owned nonregulated subsidiaries, MidAmerican
Capital and Midwest Capital Group, Inc. MidAmerican Capital has assets of $736
million in four business groups: Medallion Production Company, InterCoast Energy
Marketing and Services, InterCoast Capital Company, and InterCoast Rail Services
and Investments. Midwest Capital Group is a regional business development
company with assets of $84 million.
MidAmerican's's retail electric sales for 1995 were about 15.0 billion
kilowatt hours (kWh) and retail natural gas sales were about 97.9 million MMBtu.
The average residential customer used 8,670 kWh of electricity and 106 MMBtu of
natural gas.
Since its formation, MidAmerican's stock price has outperformed the Dow
Jones Utility Index. From the time MidAmerican began trading on July 3, 1995,
the stock price has increased 17.1 percent as compared to 3.6 percent for the
Dow Jones Utilities. All of MidAmerican's outstanding debt is investment grade
and this is expected to continue.
As an outgrowth of mergers and because of different state regulations, we
have several price schedules throughout our service territory. The average
commercial or industrial
<PAGE>
customer pays prices below the national average. Some of our residential
customers also pay below average prices, and we are proposing price reductions
and price caps to reduce rates for other residential customers by approximately
8% by 2001.
MidAmerican Energy Company
Management
Russell E. Christiansen, Chairman
Stanley J. Bright, President & CEO
Headquarters
MidAmerican Energy Company
666 Grand Avenue
P.O. Box 657
Des Moines, IA 50303-0657
Stock
Symbol: MEC
Traded on the New York Stock Exchange
$1.20 annual common stock dividend
Shareholders of record: 70,000
Total shares outstanding: 100,751,713
1996 average daily volume:
Approximately 110,000
Book value: $12.17
<PAGE>
Contacts
Keith Hartje (Media)
(515) 281-2575
Sue Rozema (Investors)
(515) 281-2250
Chuck Burgess/Adam Miller
Abernathy MacGregor Group
(212) 371-5999
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[Press Release Issued By MidAmerican on August 5, 1996]
Contacts: Keith Hartje (Media)
(515) 281-2575
Sue Rozema (Investors)
(515) 281-2250
Chuck Burgess/Adam Miller
Abernathy MacGregor Group
(515) 281-2774
Beginning August 6, 1996
(212) 371-5999
MIDAMERICAN ENERGY PROPOSES $1.17 BILLION MERGER WITH IES
INDUSTRIES
Combination Provides Greater Value for IES and MEC Shareholders;
More Benefits for Customers, Employees and the State of Iowa
---------------------------------------
DES MOINES, IA (August 5, 1996) -- MidAmerican Energy Company (NYSE:MEC)
today announced that it has proposed a merger with IES Industries Inc.
(NYSE:IES) in a cash and stock transaction valued at $39 per IES Industries
share based on the MidAmerican closing price on August 2, 1996. The proposal was
made in a letter sent yesterday to IES Chairman and Chief Executive Officer Lee
Liu. The aggregate value of the transaction would be approximately $1.17
billion. The combination would provide shareholders of IES a 21% premium over
the value of the consideration they would receive in a proposed merger with WPL
Holdings and Interstate Power Co., along with a 42% dividend increase over the
dividend proposed in the Wisconsin transaction.
"The combination of these two fine companies will result in a strong
Iowa-based utility and bring much greater value to the customers, shareholders
and employees of both companies," said Russ Christiansen, chairman of
MidAmerican Energy Company. "We will continue to aggressively promote economic
growth in the State of Iowa as well as expanding our marketing efforts to other
parts of the midwest."
MidAmerican's proposal calls for a cash and stock merger comprised of 40%
cash and 60% MidAmerican common stock. IES common shareholders receiving cash
will receive $39 per share of IES common stock and IES common shareholders
receiving
<PAGE>
stock will receive 2.346 shares of MidAmerican common stock per share of IES
common stock.
The full text of the letter is as follows:
********
August 4, 1996
Mr. Lee Liu
Chairman of the Board, President
& Chief Executive Officer
IES Industries Inc.
IES Tower
200 First Street, SE
Cedar Rapids, IA 52401
Dear Lee,
You will recall that in August 1995 we discussed with you a possible
business combination between our respective companies. Following that
discussion, by letters dated October 3 and October 10, 1995, we attempted to
commence a dialogue regarding the benefits of such a combination, which you
rebuffed. Our efforts to discuss a business combination with you culminated in
our October 23, 1995 request, acting in accordance with an August 16, 1993
standstill agreement, for permission from your board to propose a business
combination between our respective companies. You refused to permit us to make
our proposal. A copy of the October 1995 correspondence is attached. We were
disappointed when you announced two weeks later that you had entered into your
proposed transaction (the "Wisconsin Transaction") with WPL Holdings, Inc. and
Interstate Power Company because that transaction included terms less favorable
to IES Industries Inc. ("IES") and its shareholders than those we had proposed,
including a notable reduction in your dividend.
We have continued to be interested in a business combination with IES, and,
as I am sure you are aware, the standstill provisions terminated on August 1,
1996. Following the publication of the proxy statement for the Wisconsin
Transaction, we have undertaken a further and detailed review of the benefits
from a combination of our companies and have compared those benefits to those
that would result from the Wisconsin Transaction. We strongly believe that a
combination of our companies will result in significantly greater benefits for
the respective shareholders, customers and employees of both companies and for
Iowa than would the Wisconsin Transaction.
Accordingly, the MidAmerican Energy Company ("MidAmerican") Board
<PAGE>
Mr. Lee Liu
August 4, 1996
Page 2
of Directors has approved and authorized the submission of the following
merger proposal:
IES would merge with and into MidAmerican or with a subsidiary of MidAmerican in
a transaction in which the aggregate consideration will be 40% cash (or less if
your shareholders so elect) and the remainder in MidAmerican common stock, to be
allocated in accordance with customary election and allocation procedures to be
set forth in the merger agreement. IES common shareholders receiving cash will
receive $39 per share and IES common shareholders receiving stock will receive
2.346 shares of MidAmerican common stock (worth $39 per share based on the
closing price on August 2, 1996) for each share of IES common stock. We have
sufficient resources to meet the financial obligations resulting from our
proposal.
Our merger proposal is significantly superior to the Wisconsin Transaction
in every important respect:
* Based upon closing stock prices for Friday, August 2, 1996, our
proposal represents a 31% premium above the IES common stock price, as
compared to only an 8% premium from the Wisconsin Transaction -- our
proposal therefore offers a 21% premium ($6.81 per share) above the
implied value of the Wisconsin Transaction.
* Our proposal includes a pro forma dividend of $2.82 per IES share, a
34% increase above IES's current dividend rate, as compared to the pro
forma dividend in the Wisconsin Transaction, which reduces IES's
current dividend rate by 5% -- our proposal therefore offers a
dividend which is $0.83 per share or 42% higher than in the Wisconsin
Transaction.
* Our proposal gives IES shareholders a choice of cash or, on a tax-free
basis, stock in a combined company that we believe will be a stronger
and more highly competitive total energy provider for the region.
Some of the other major benefits of our proposal include:
* A commitment to the maintenance of our current dividend rate with
declining payout ratios targeted at 80% by the year 2000.
* Immediate substantial accretion to earnings per share for IES
stockholders.
<PAGE>
Mr. Lee Liu
August 4, 1996
Page 3
* More than $500 million in cost savings during the first ten years
following consummation. These savings will result principally from IES
and MidAmerican's contiguous and overlapping service territories and
joint ownership of generation and transmission facilities.
* A proven track record of successfully integrating mergers, including
expeditiously obtaining regulatory approvals, so that shareholders and
customers may promptly realize merger related benefits.
* The opportunity for IES customers to benefit from MidAmerican's
innovative electric pricing proposal that offers: 1) price reductions
for certain customers; 2) no future rate increases through 2000; and
3) the flexibility to negotiate price and terms of service with
industrial customers.
Our proposed merger agreement will include the same representations and
warranties and substantially the same applicable terms, conditions and covenants
as the Wisconsin Transaction merger agreement, reflecting a tax-free structure
with respect to the stock portion of the consideration, except that (1) IES
stockholders will be able to elect to receive a cash allocation, (2) the
headquarters of the combined company will be in Des Moines, Iowa and the
combined company will continue to maintain a significant presence in Cedar
Rapids, (3) our proposed transaction will be accounted for as a purchase rather
than a pooling of interests. The Board of the combined company will include
directors from IES.
Our proposed merger will create a larger company with a regional growth
strategy starting from an Iowa base. Therefore, we intend to enhance our good
business relationships with other energy providers in Iowa. Synergies will
require employment adjustments in either transaction. However, we would seek
to accomplish these adjustments by normal attrition and programs such as early
retirement. Our commitment to local and regional business growth will contribute
to higher employment for the economy of Iowa than the Wisconsin Transaction. The
combined company will be in a better position to promote economic and civic
development throughout the IES service area and Iowa.
Our ongoing pursuit of a business combination between our two companies is
driven by our genuine belief that IES and MidAmerican now have an extraordinary
and timely opportunity to build on our mutual strengths. The benefits we have
identified for shareholders, customers, employees and Iowa makes this a unique
opportunity for both IES and MidAmerican.
<PAGE>
Mr. Lee Liu
August 4, 1996
Page 4
Our offer is, of course, contingent upon receipt of all necessary approvals
from shareholders and from regulatory and other governmental agencies. We will
file as soon as practicable applications with the appropriate federal, Iowa and
Illinois regulatory agencies seeking approval of our proposed business
combination. We believe that we could obtain all requisite regulatory approvals
within 12 months after execution of the definitive merger agreement, which we
are prepared to execute immediately. We have instructed our legal counsel
Sullivan & Cromwell to prepare a draft of the merger agreement. Please contact
them if you wish to review a copy of that draft.
We appreciate that you will be required to present our merger offer to your
Board of Directors for its careful consideration. We feel that after such
consideration, your Board will agree with us that our merger offer is (1)
financially superior to the Wisconsin Transaction (2) better for customers and
employeees of IES and (3) better for Iowa, and that your Board, consistent with
its fiduciary obligations recognized under Section 10.1(e) of the Wisconsin
Transaction merger agreement, should accept our proposal. We are also prepared
to meet with you or with you and your directors to discuss our merger offer and
to answer any questions you or they may have.
As I am sure you can appreciate with a proposal of this sort, time is of
the essence. Accordingly, we would appreciate hearing from you as soon as
practicable. If we cannot promptly reach an agreement with respect to a business
combination between our companies, we intend to solicit proxies against the
Wisconsin Transaction for use at the upcoming meeting of IES shareholders
presently scheduled to be held on September 5, 1996.
We look forward to the completion of the mutually beneficial combination of
our companies.
Sincerely,
cc: Board of Directors of IES Industries Inc.
********
<PAGE>
It is anticipated that all necessary regulatory and shareholder approvals
can be obtained and that the merger can be completed within 12 months after
execution of a definitive merger agreement. The combined companies represent
$6.5 billion in assets, $2.6 billion in revenues and will serve 960,000 electric
customers and 770,000 gas customers. The two companies have a combined
generating capacity of over 5,960 MW balanced among nuclear, coal, hydro, oil
and natural gas fueled plants.
IES Industries is a holding company whose principal subsidiary, IES
Utilities Inc., serves 325,000 electric and 170,000 natural gas retail customers
in Iowa.
MidAmerican Energy Company, Iowa's largest utility, serves 635,000 electric
customers and 600,000 natural gas customers in Iowa, Illinois, South Dakota and
Nebraska. The Company is headquartered in Des Moines. Information about
MidAmerican is available on the Internet at http://www.midamerican.com.
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
<PAGE>
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
PRELIMINARY DRAFT
- -----------------
[Transaction Summary]
STRATEGIC INTENT
* Realize Merger Savings - We've Done It Before, and Will Again
* Redeploy Non-Strategic, Underperforming Unregulated Assets - Oil & Gas is
the First (Dillon, Read Engaged to Advise the Company)
* Pursue Evolving Strategy of Regional Energy Service and Communications
Provider
- 1 -
<PAGE>
STRENGTHS OF TRANSACTION
* Rapid Closing - Assume Closing In 1997
* Fewer Regulatory Approvals - Approvals in Wisconsin and Not
Minnesota Required
* Simpler Regulatory Process - Innovative Pricing Proposal
Already on File
- Companies Interconnected
* Shareholder Approval Likely - Compelling Financial Terms
* Strong Strategic Rationale - Iowa Based Energy and
Communication Service Provider
- [McLeod Ownership of
Approximately 40%]
- 2 -
<PAGE>
BENEFITS TO MIDAMERICAN SHAREHOLDER
* Repositions the Company as a Regional Energy and Communication Service
Provider [(McLeod Ownership - Approximately 40%)]
* Enhances Future Earnings Potential By Increasing Competitiveness
* Further Strengthens Dividend - Paying Capacity
* Adds to Existing Low Cost Generation Position
* Opportunity to Benefit From Substantial Cost Savings and Other Synergies
* Creates Major Iowa-Based Company With a Strong State and Regional Focus
- 3 -
<PAGE>
BENEFITS TO IES SHAREHOLDERS
* Significant Premium and Cash Option (31% Premium vs. 8% in WPL Offer)
* Major Dividend Increase Vs. Slight Dividend Decrease (34% Increase vs. 5%
Decrease)
* Immediate and Substantial Earnings Accretion (Direct Result of Premium)
* Competitive Position Enhanced by MidAmerican Pricing Proposal - Don't
Want a Repeat of Their Iowa Southern Experience
* Creates Strong Regional Energy and Communication Service Provider
* Recent Experience Suggests the Management Team Can Achieve Significant
Savings
- 4 -
<PAGE>
FINANCIAL FORECAST - - MEC STAND-ALONE
Utility Operations
- ------------------
- - Electric Operations Based Upon Achieving 12.5% Returns
- - Gas Operations Incorporate Nominal Rate Increases in 1998 and 1999
- - Expenses Associated With Potential Stranded Costs and Customer Service
Improvements Are Based Upon Pricing Proposal
Unregulated Operations
- ----------------------
- - Assumed Sale of Oil and Gas Operations
- - Proceeds of Sale Reinvested at 12.5% After-Tax
- 5 -
<PAGE>
FINANCIAL FORECAST - MEC/IES PROFORMA
Deal Structure
- --------------
- - $39 Per Share
- - 40% Cash ($537 Million), 60% Common Stock
- - Purchase Accounting, $411 Million of Goodwill ($10.3 Million Annual
Amortization)
IES Stand-Alone
- ---------------
- - Based on Published Analyst Estimates
1998 1999 2000
---- ---- ----
$2.35 $2.39 $2.44
Synergies
- - Current Estimate is More Than $500 Million Over 10 Years - E&Y
Assistance - Projections Assume:
1998 1999 2000
---- ---- ----
$25 M $50 M $70 M
* 50/50 Sharing Between Ratepayers and Shareholders
* Transaction Closes in 1997
- 6 -
<PAGE>
FINANCIAL FORECAST - MEC/IES PROFORMA
Results
- - EPS Impact Depends Upon Synergies Realized, Regulatory Treatment, and the
Redeployment of Divested Assets.
* Our Objective is Essentially a Break-Even in 1998 Depending on the
Speed of our Divestiture Program, Synergy Achievement and Cost of
Achievement
* We Are Very Confident of Break-Even In 1999 Even Without
Redeployment of Assets
* We Have Achieved Substantially Greater Synergies in the MidAmerican
Merger Than We Projected at the Time
- - Immediate Increase in Leverage Due to Cash Portion Financed With Debt
* Leverage Will Increase Day One Following the Merger
* Liquidity Will Be Strong (See "Potential Sources of Cash")
- - Dividend Payout Higher Than Preferable in First Couple of Years
(90% in 1998), But We Expect It to Decline Quickly
* Approximately 80% in 2000
* Long Term Goal is Low 70's
- 7 -
<PAGE>
POTENTIAL SOURCES OF CASH
MidAmerican
- -----------
InterCoast Energy (Oil & Gas) Included in Stand Alone Base Case
Preferred Stock Portfolio $230 Million
McLeod Investment $208*
Railcar Services ?
IES
- ---
McLeod Investment $256*
Whiting Petroleum ?
CRANDIC ?
Industrial Energy Applications ?
New Zealand Investments ?
Other ?
Conservative Total Estimate $900 - $1B
Excluding McLeod $486
* Subject to Restrictions in Shareholder Agreement.
- 8 -
<PAGE>
POTENTIAL DEBT REDUCTION
MEC PROFORMA AFTER APPLICATION
DAY ONE OF CASH SOURCES *
Total Debt $2,694 Million $2,208 Million
Preferred Stock $ 247 $ 247
Common Stock $1,952 $1,952
------ ------
Total Capitalization + STD $4,647 $4,407
Total Debt/Capitalization + STD 58% 50%
Common Equity/Capitalization + STD 42% 44%
* Reflects Theoretical Capitalization as if $486 Million of Cash is Raised
From Potential Sources of Cash" and Used to Pay Down Debt.
- 9 -
<PAGE>
TRANSACTION FACTS
TERMS MEC Shareholders
----- ----------------
$39 Per Share Target Breakeven 1998
40% Cash ($537)/60% Common Very Confident Breakeven
Purchase Accounting 1999 Even Without
Stock Portion Tax-Free Asset Redeployment
Dividend Payout Ratio
IES Shareholders 1998 90%
- ----------------
2000 Approximately 80%
31% Premium to Market
21% Premium to WPL Deal
34% Dividend Increase (to $2.82) Ownership After Merger: 70.5%
- 10 -
<PAGE>
REGULATORY PLAN
* Plan Designed to Structure An Orderly Transition to a Competitive Market
* Key Elements:
- Immediate and Continuing Rate Reductions
- Uses a Price Proxy Based Upon Average Regional Rates
- Up to 12.5% ROE - No Reduction In Revenues
- 12.5% to 13.5% Band Used to Accelerate Regulatory Asset Recovery and
Customer Service Improvements;
- 13.5% to 14.5% Band Split Between Regulatory Assets and Retention
by Shareholder
- Above 14.5% - - Regulatory Assets
* Consistent With Our Transition to Cash Flow Focus - May Slightly Lower
Reported Earnings But Receive Cash Flow Benefits
- 11 -
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
PRELIMINARY DRAFT
- -----------------
[Second Version of Transaction Summary Distributed to Executives of MidAmerican]
STRATEGIC INTENT
* Realize Merger Savings - We've Done It Before, and Will Again
* Redeploy Non-Strategic, Underperforming Unregulated Assets - Oil & Gas is
the First (Dillon, Read Engaged to Advise the Company)
* Pursue Evolving Strategy of Regional Energy Service and Communications
Provider
- 1 -
<PAGE>
STRENGTHS OF TRANSACTION
* Rapid Closing - Assume Closing In 1997
* Fewer Regulatory Approvals - Approvals in Wisconsin and Not
Minnesota Required
* Simpler Regulatory Process - Innovative Pricing Proposal
Already on File
- Companies Interconnected
* Shareholder Approval Likely - Compelling Financial Terms
* Strong Strategic Rationale - Iowa Based Energy and
Communication Service Provider
- McLeod Strategic Partnership
- 2 -
<PAGE>
BENEFITS TO MIDAMERICAN SHAREHOLDER
* Repositions the Company as a Regional Energy and Communication Service
Provider
* Enhances Future Earnings Potential By Increasing Competitiveness
* Further Strengthens Dividend - Paying Capacity
* Adds to Existing Low Cost Generation Position
* Opportunity to Benefit From Substantial Cost Savings and Other Synergies
* Creates Major Iowa-Based Company With a Strong State and Regional Focus
- 3 -
<PAGE>
BENEFITS TO IES SHAREHOLDERS
* Significant Premium and Cash Option (31% Premium vs. 8% in WPL Offer)
* Major Dividend Increase Vs. Slight Dividend Decrease (34% Increase vs. 5%
Decrease)
* Immediate and Substantial Earnings Accretion (Direct Result of Premium)
* Competitive Position Enhanced by MidAmerican Pricing Proposal - Don't
Want a Repeat of Their Iowa Southern Experience
* Creates Strong Regional Energy and Communication Service Provider
* Recent Experience Suggests the Management Team Can Achieve Significant
Savings
- 4 -
<PAGE>
FINANCIAL FORECAST - - MEC STAND-ALONE
Utility Operations
- ------------------
- - Electric Operations Based Upon Achieving 12.5% Returns
- - Gas Operations Incorporate Nominal Rate Increases in 1998 and 1999
- - Expenses Associated With Potential Stranded Costs and Customer Service
Improvements Are Based Upon Pricing Proposal
Unregulated Operations
- ----------------------
- - Assumed Sale of Oil and Gas Operations
- - Proceeds of Sale Reinvested at 12.5% After-Tax
- 5 -
<PAGE>
FINANCIAL FORECAST - MEC/IES PROFORMA
Deal Structure
- --------------
- - $39 Per Share
- - 40% Cash ($537 Million), 60% Common Stock
- - Purchase Accounting, $411 Million of Goodwill ($10.3 Million Annual
Amortization)
IES Stand-Alone
- ---------------
- - Based on Published Analyst Estimates
1998 1999 2000
---- ---- ----
$2.35 $2.39 $2.44
Synergies
- - Current Estimate is More Than $500 Million Over 10 Years - E&Y
Assistance - Projections Assume:
1998 1999 2000
---- ---- ----
$25 M $50 M $70 M
* 50/50 Sharing Between Ratepayers and Shareholders
* Transaction Closes in 1997
- 6 -
<PAGE>
FINANCIAL FORECAST - MEC/IES PROFORMA
Results
- - EPS Impact Depends Upon Synergies Realized, Regulatory Treatment, and the
Redeployment of Divested Assets.
* Our Objective is Essentially a Break-Even in 1998 Depending on the
Speed of our Divestiture Program, Synergy Achievement and Cost of
Achievement
* We Are Very Confident of Break-Even In 1999 Even Without
Redeployment of Assets
* We Have Achieved Substantially Greater Synergies in the MidAmerican
Merger Than We Projected at the Time
- - Immediate Increase in Leverage Due to Cash Portion Financed With Debt
* Leverage Will Increase Day One Following the Merger
* Liquidity Will Be Strong (See "Potential Sources of Cash")
- - Dividend Payout Higher Than Preferable in First Couple of Years
(90% in 1998), But We Expect It to Decline Quickly
* Approximately 80% in 2000
* Long Term Goal is Low 70's
- 7 -
<PAGE>
POTENTIAL SOURCES OF CASH
MidAmerican
- -----------
InterCoast Energy (Oil & Gas) Included in Stand Alone Base Case
Preferred Stock Portfolio $230 Million
McLeod Investment $208*
Railcar Services ?
IES
- ---
McLeod Investment $256*
Whiting Petroleum ?
CRANDIC ?
Industrial Energy Applications ?
New Zealand Investments ?
Other ?
Conservative Total Estimate $900 - $1B
Excluding McLeod $486
* Subject to Restrictions in Shareholder Agreement.
- 8 -
<PAGE>
POTENTIAL DEBT REDUCTION
MEC PROFORMA AFTER APPLICATION
DAY ONE OF CASH SOURCES *
Total Debt $2,694 Million $2,208 Million
Preferred Stock $ 247 $ 247
Common Stock $1,952 $1,952
------ ------
Total Capitalization + STD $4,647 $4,407
Total Debt/Capitalization + STD 58% 50%
Common Equity/Capitalization + STD 42% 44%
* Reflects Theoretical Capitalization as if $486 Million of Cash is Raised
From Potential Sources of Cash" and Used to Pay Down Debt.
- 9 -
<PAGE>
TRANSACTION FACTS
TERMS MEC Shareholders
----- ----------------
$39 Per Share Target Breakeven 1998
40% Cash ($537)/60% Common Very Confident Breakeven
Purchase Accounting 1999 Even Without
Stock Portion Tax-Free Asset Redeployment
Dividend Payout Ratio
IES Shareholders 1998 90%
- ----------------
2000 Approximately 80%
31% Premium to Market
21% Premium to WPL Deal
34% Dividend Increase (to $2.82) Ownership After Merger: 70.5%
- 10 -
<PAGE>
REGULATORY PLAN
* Plan Designed to Structure An Orderly Transition to a Competitive Market
* Key Elements:
- Immediate and Continuing Rate Reductions
- Uses a Price Proxy Based Upon Average Regional Rates
- Up to 12.5% ROE - No Reduction In Revenues
- 12.5% to 13.5% Band Used to Accelerate Regulatory Asset Recovery and
Customer Service Improvements;
- 13.5% to 14.5% Band Split Between Regulatory Assets and Retention
by Shareholder
- Above 14.5% - - Regulatory Assets
* Consistent With Our Transition to Cash Flow Focus - May Slightly Lower
Reported Earnings But Receive Cash Flow Benefits
- 11 -
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[Comparision of Doability Aspect of the Mergers]
"DOABILITY COMPARISON"
Why We Can Complete This Merger
- -------------------------------
* Compelling Financial -- Our merger proposal provides IES
shareholders with a significant premium over market for their stock, and an
increase in the dividend of 42%.
* Significant Benefits for Customers and the State of Iowa -- A combination
of MidAmerican Energy Company and IES Industries is in the best interests of the
two companies' customers, plus the people of Iowa. It would create a strong
Iowa-based company committed to community involvement and economic development.
* Proven Track Record -- In the last five years we have completed two
mergers. In each case, we successfully integrated the companies and
expeditiously obtained regulatory approvals so that shareholders and customers
promptly realized merger-related benefits.
Obstacles To The Three-Way Merger
- ---------------------------------
* No Interconnects -- IES has no transmission interconnections with either
WPL Holdings or Interstate Power Company.
* Slow Progress -- IES and the other parties in the Wisconsin transaction
have not made much progress in the regulatory approval process. In fact, the
group of companies has now withdrawn its merger application in Iowa.
* Complex Structure -- The transaction structure in the three-way merger is
extremely complex, which will likely delay the approval process.
* Complex Integration -- It is very complicated to integrate the
operations, facilities and administrative functions of three separate utility
companies.
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[Script for Conference Call with Analysts]
MIDAMERICAN ENERGY
ANALYST CONFERENCE CALL SCRIPT
August 5, 1996
STAN BRIGHT:
Good morning, ladies and gentlemen. I'm Stan Bright, President of MidAmerican
Energy. Thank you for joining us. With me this morning are Ron Stepien, Phil
Lindner, Sue Rozema and Alan Wells.
I want to inform you that Lance Cooper has decided to retire and Phil has been
named CFO. Ron Stepien is Group Vice President, Strategic Planning & Corp.
Development. Alan is CFO of MidAmerican Capital Company and Manager of
Corporate Development.
I will begin by discussing our proposal to merge with IES Industries, which we
announced earlier this morning, and to describe how the benefits of this
combination are too compelling to ignore.
After that, I will be happy to entertain any questions you may have.
1
<PAGE>
This merger will create a strong Iowa-based utility providing increased value to
all shareholders. Our merger proposal is financially superior in all respects to
the Wisconsin transaction and is fully aligned with our long-term strategic
focus on the gas and electric energy business, related services and
communications.
The combined company would have $6.5 billion in assets -- serving over 960,000
electric and 760,000 gas customers. Our combined revenues would be $2.5 billion
and we would have a combined generation capacity of over 5,960 megawatts.
We have proposed to enter into a transaction that is comprised of 40% cash and
60% MidAmerican common stock. IES common shareholders receiving cash would
receive $39 per share of IES common stock. IES common shareholders receiving
stock would receive 2.346 shares of MidAmerican common stock per share of IES
common stock on a tax-free basis.
This price represents a 31% premium above IES's current market price as compared
to only a 8% premium above the implied value of the Wisconsin proposal. Our
proposal, therefore, offers a 21% premium above the implied value of the
Wisconsin transaction.
2
<PAGE>
Our proposal includes a dividend of $2.82 per IES share, which is 42% higher
than IES's dividend in the Wisconsin transaction. The Wisconsin transaction
contemplates a 5% reduction, from IES's current dividend rate. We are really
talking about a dividend that is $0.83 per share higher than the Wisconsin
transaction.
We have made a commitment to maintain the current MidAmerican dividend rate,
with declining payout ratios targeted at 80% by the year 2000.
To help us identify the potential synergies and cost savings generated in a
combination of IES and MidAmerican, we've hired Ernst & Young. They've worked
with us to examine the publicly available information about IES and we have made
a preliminary estimate that this combination would generate savings of
approximately $500 million over 10 years. About half of those savings would come
from workforce reductions, while the rest would result from such items as the
elimination of redundant non-labor expenses, more efficient use of assets, and
the avoidance of capital expenditures. I also want to point out that our two
service territories overlap a great deal while the Wisconsin deal requires
additional transmission interconnects. An example of service territory overlap
is in Cedar
3
<PAGE>
Rapids where we provide the gas service and IES provides electric service.
MidAmerican has a proven track record of rapidly integrating mergers so that
shareholders and customers realize significant benefits quickly. We believe that
this proposal would be approved by regulators and shareholders, and could be
consummated within 12 months after the signing of a definitive merger agreement.
MidAmerican Energy plans to finance the cash portion of this transaction with
$500 million of debt. In addition, we plan to divest and redeploy assets not
aligned with our core strategy. Along with the $500 million of merger savings
over the next 10 years, this will generate substantial cash that we will use for
1) strategic investments in electric, gas, related services or communications,
2) repurchase of common stock or 3) debt reduction.
A strategic benefit of this merger is to combine IES and MidAmerican's holdings
in McLeod, Inc., a provider of integrated telecommunications services. Once
combined, the new company would have ownership of approximately 40% in this
rapidly growing publicly traded Iowa-based company with a market capitalization
of $1.1 billion.
4
<PAGE>
The benefits of a MidAmerican/IES merger are compelling. We are talking about
substantial merger savings, benefits for customers and shareholders, and a
stronger company.
Now I'll take any questions that you have.
[Q&A session]
CLOSE:
I'd like to thank everyone for joining us. If anyone has further questions,
please call Sue Rozema at (515) 281-2250.
5
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[MidAmerican Energy Company Position Statement]
Electric Industry Restructuring
Position Statement by MidAmerican Energy Company
August 1996
Restructuring the electric industry must be nationwide and involve all suppliers
of electricity: investor-owned utilities, municipal utilities, rural electric
cooperatives, public power districts and federal power districts. To accomplish
this industry-wide restructuring and transition to competitive markets will
require action by the U.S. Congress.
MidAmerican Energy Company encourages Congress to direct that all states and
- ----------------------------------------------------------------------------
the Federal Energy Regulatory Commission (FERC) develop competitive electric
- ----------------------------------------------------------------------------
markets by Jan. 1, 2002.
- ------------------------
Competitive Electric Markets
Competition must exist in (1) the generation of electricity, and (2) the
provision of retail electric services. It is likely that competition will
develop first in the generation market. But within each market, all suppliers of
electricity and related services must have the opportunity to compete at the
same time, nationwide, free of unreasonable state or federal restrictions.
Role of the FERC* and the States in Restructuring
The FERC must (1) develop the details of competitive markets for federal power
districts, and (2) coordinate with the states in developing parameters for the
pricing and conditions for delivery of electricity and the transition to
competitively-established prices for generation and retail energy services.
States must eliminate barriers to competition, such as taxes that
disproportionately affect investor-owned utilities, (3) establish generation and
transmission siting requirements that do not discriminate against investor-owned
utilities, and (4) spread the cost of social program mandates among all
citizens.
In a competitive environment, the states and Congress should share the
responsibility of helping consumers who cannot pay for their electric service.
-1-
<PAGE>
Financial Considerations in Restructuring
One of the troublesome issues associated with the transition of the electric
industry to open-market competition is how to deal with the difference between
prices based on regulatory principles and prices that customers will pay when
they have supplier choices. Some costs that investor-owned utilities have
incurred under regulation may not be recoverable under competitive pricing.
These are frequently called, "strandable costs."
While there should be no guarantees that all booked costs can be recovered,
utilities should be given the opportunity to lessen the impact of these costs
before competitive markets develop. MidAmerican also suggests utilities be given
three years after competitive, retail markets develop to attempt to recover any
remaining strandable costs.
# # #
* The FERC is an independent agency within the U.S. Department of Energy
that has broad authority in most facets of electric and natural gas production,
sales and delivery conducted in interstate commerce.
-2-
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[Question and Answer List]
POSSIBLE ANALYST QUESTIONS
PROPOSED MERGER OF
MIDAMERICAN ENERGY AND IES INDUSTRIES
-NOT FOR PUBLIC RELEASE -
Q. Why use purchase accounting?.
A. This is a cash and stock transaction and the use of purchase
accounting is required by the nature of the transaction.
Q. Why did you structure the transaction as a cash and stock transaction?
A. We wanted to give shareholders an opportunity to take stock so they
can participate in the up-side of the company's future. We anticipate
that some will prefer cash and we structured the transaction with that
knowledge.
Q. How is MidAmerican going to finance the cash portion of the
transaction?
A. Our existing credit facilities, together with our strong balance
sheet, will allow us the resources to finance the transaction.
Q. What regulatory approvals are required?
A. Regulatory approval is required from the Federal Energy Regulatory
Commission, the Iowa Utilities Board and the Illinois Commerce
Commission. Filings will also be made with the Federal Energy
Regulatory Commission and the Nuclear Regulatory Commission.
Q. What are the synergies from the merger?
A. A preliminary estimate is that the merger will achieve savings of
approximately $500 million over the next ten years. Savings will come
from the following areas:
* Elimination of redundant, non-labor expenses such as regulatory
fees, association dues and insurance premiums.
* Integration of corporate management and administrative functions.
* Contiguous and overlapping service territory
1
<PAGE>
* Avoidance of duplicate capital expenditures such as information
technology systems, and electric generating units
* More efficient use of generating assets
* Implementation of best practices of each company by the other,
such as fuel management and purchasing.
Q. Will any jobs be lost as a result of this merger?
A. There will be some adjustment of employment levels due to elimination
of duplicate functions, but we are confident we can achieve the
majority of them through attrition, hiring freezes, re-deployment and
other voluntary methods.
Q. If WPL and Interstate restructured their deal to increase
compensation to IES shareholders, would MidAmerican improve
its offer?
A. We have an excellent proposal on the table. We will not speculate
on this hypothetical situation.
Q. What makes you think you will be successful with this transaction even
though it is not structured as a merger of equals?
A. Each transaction is unique. We have made a compelling proposal.
If IES shareholders have a full opportunity to compare our offer
with the existing Wisconsin transaction, we believe they will find
ours to be the better offer.
Q. If this deal goes through, what role will Mr. Liu have in the new
organization?
A. We would be happy to meet with him regarding the matter.
Q. What will your dividend payout ratio be after this transaction?
A. We've made a commitment to the maintenance of the current MidAmerican
dividend rate with declining payout ratios targeted at 80% by the
year 2000.
2
<PAGE>
Q. What effect will this transaction have on your credit ratings?
A. We believe that although the additional debt may cause our debt
ratio to be higher than the range for our present debt rating,
the strategic competitive advantages, improved cash flow and
greater financial strength from this transaction will position us
better in the longer run for our debtholders and shareholders.
Q. What effect will this transaction have on your cash flow?
A. Sale of underperforming and non-strategic assets along with $500
million of merger savings will produce substantial cash flow
to use for reinvestment in more strategic investment opportunities
or repurchase of common stock or debt reduction.
Q. What is the dilution?
A. Our objective is to essentially break even in 1998 depending on the
speed of our divestiture program, synergy achievement and cost of
achievement. We are very confident of breakeven after savings fully
kick-in (1999).
Q. How will the market react to this deal?
A. We can't predict, but we think investors will like it. We
believe that once everyone has a chance to review our proposal,
they will see the pervasive merits of the transaction and will
become convinced as we are that it will get done.
Q. What are you going to do with generating assets?
A. We have some of the lowest cost fossil generating assets in the
country. Pursuant to new federal regulations, we have separated
the operations management of generation from transmission and
distribution. We will continue to develop practical solutions
to changing regulatory and business opportunities.
Q. Will IES be a separate entity after merger?
A. We would plan to fully integrate IES into our system to the benefit
of employees, shareholders and customers. Of course, this is subject
to any applicable regulatory approval.
3
<PAGE>
Q. What do you think you'll spend on this effort?
A. It depends on how the proposal is received by IES. As you know these
are expensive endeavors. We are committed to seeing it through. We
do not expect it to have a material effect on earnings long-term.
Q. What is the impact on 1996 earnings.
A. Those costs cannot be predicted at this time.
Q. How will the board be structured?
A. The board structure will be determined in negotiations. We have not
been invited to discuss any issues.
Q. Have you contacted any politicians?
A. Yes. The reaction has been particularly favorable and enthusiastic.
Q. Will IES customers participate in the pricing proposal.
A. We are hopeful that integrating them into our pricing proposal would
be beneficial to all interested parties. If so, we will seek
approval to do that.
Q. How do the cultures of the two companies compare?
A. We are both Iowa utility companies with similar cultures. We have a
great deal of respect for their employees. We admire their economic
development efforts and look forward to continuing that commitment.
Q. How does your regulatory timetable compare with the pending
IES/WPL/Interstate transaction?
A. We anticipate obtaining all regulatory approvals within 12
months. We believe regulatory approvals for this transaction can be
obtained as fast or faster than the regulatory approvals
necessary for the Wisconsin transaction.
4
<PAGE>
Q. Will IES have to postpone its meeting in light of MidAmerican's bid?
A. We believe the IES board would best uphold their fiduciary duties to
IES' shareholders by delaying their scheduled September 5 meeting.
Q. How would you describe the performance of your unregulated
businesses?
A. Some of our non regulated businesses have not performed up to our
expectations. Non-performing and non-strategic assets will be sold
or closed. Our strategy will focus on being a regional provider
primarily of energy and communications services.
Q. What nuclear operating experience does your company have?
A. We have partial ownership with Commonwealth Edison of the Quad
Cities Nuclear plant. We also have a full requirements contract with
NNPD for the output of Cooper Nuclear Station.
Q. How can you win a retail-focused proxy contest in a short period of
time?
A. We believe the IES shareholders will be receptive to our message that
they should not approve a transaction when their board is in receipt
of a superior proposal. The quality of our offer should get their
attention.
Q. If OCA rate reduction attempt is successful, how will you be able to
pay for this transaction?
A. We believe the OCA will not be successful. We believe the pricing
proposal we have filed will prevail.
- Refer to OCA filing fact sheet -
Q. What happened to the InterCoast IPO?
A. Market conditions deteriorated significantly, so we decided to
terminate the IPO.
Q. Who are your advisors? Bankers?
5
<PAGE>
A. Dillon Reed
Sullivan & Cromwell
Ernst & Young
Q. What is your reaction to recent stock price changes?
A. I don't think it's appropriate to comment on stock price movements
at this early date and I do not believe this reflects the longer
trend. We hope the market will react favorably as investors fully
understand our proposal and its merits.
Q. Please explain the timing of your offer.
A. We attempted to initiate merger discussions with IES in October of
1995. We were rebuffed and constrained by a standstill agreement.
This standstill expired on August 1, 1996.
Q. How will you fund this transaction?
A. We plan to finance the transaction with debt. We also plan
to sell non-strategic assets and, together with merger savings,
this cash will be used to invest in strategic assets, repurchase
common stock or reduce debt.
Q. When will you have open electric markets in Iowa?
A. We have opened our transmission system in accordance with FERC
guidelines. We believe the industry is moving toward a more
competitive environment and we are working with state regulators to
provide an orderly transition. Our pricing proposal is an example
of our proactive position for an orderly transition to an
open market. Our strategy is based on expectations that the
market will be open by 2002.
Q. Do you plan an ISO?
A. At the present time we are members of MAPP which has a proposal at
the FERC. We are studying the ISO action in the Midwest.
Q. What is strategy, cost, time for stopping IES vote, getting new
vote?
6
<PAGE>
A. We believe and hope that the IES Board of Directors will
recognize the overwhelming benefits of our offer and agree to
accept our proposal. We will work as quickly as we can to
communicate the compelling benefits of our merger with the IES
shareholders.
Q. Do you plan to fight the break-up fees.
A. We will discuss that after the breakup. We can't comment on that
now.
Q. Does either company have golden parachute agreements in place? What
are the terms?
A. IES has some - see proxy.
Q. Does this transaction require MEC shareholder approval?
A. Yes.
Q. Is there any significant litigation pending for either side?
A. Not to our knowledge.
Q. Are there any environmental problems for either company?
A. Nothing extraordinary. All MEC environmental matters are disclosed
in the 10 Q.
Q. What credit facilities does the company currently have?
A. The company has a $250 million revolving credit in place which is
used as backup for commercial paper issuances. We have discussed
the matter of financing with financial advisors and are
confident we can obtain necessary financing.
Q. What contact have you had with FERC, Iowa Utilities Board, the
Governors office or Iowa legislators.
A. We have notified governmental and regulatory authorities in Iowa and
Illinois of our proposed transaction.
7
<PAGE>
Q. When will MidAmerican make its proxy filing?
A. This week.
8
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[MEC/IES Service Territory Map]
(A map outlining the border of the State of Iowa showing the combined utility
service territories of MidAmerican Energy Company and IES Utilities Inc.
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[Issues List -- OCA Rate Reduction Filing]
Issues List --- OCA Rate-Reduction Filing
A Summary of the Two Proposals:
OCA Filing
* Proposed $101 million first-year reduction
* Short-sighted approach with unrealistic reductions that will be
followed by price increases
* Across-the-board rate reduction perpetuates cross-class subsidies
and geographic disparities
MidAmerican's Pricing Proposal
* Voluntary plan that provides $10 million in price reductions the
first year, increasing to a minimum $25 million annual reduction by
2001, virtually all going to residential customers
* Customer-specific pricing flexibility provides stable or declining
prices for all customers
* Pricing flexibility enhances economic development
* Plan provides long-term price stability --- prices will not be
increased for 5 years and many customers' prices will go down
* Plan is forward looking and establishes the basis for a financially
sound electric utility
Concerns About the OCA's Proposal:
OCA's Proposal has Negative Impacts on Customers
* Does not recognize the benefits of stable or declining prices...
prices vary drastically --- first lower, then invariably higher
* Does not recognize the need for fairness achievable by bringing
prices closer together for customers receiving similar service but
located in different geographic regions
* Harms our ability to fund needed customer service improvements
(for example, a new customer information system)
OCA's Proposal has Negative Impacts on MidAmerican Investors
* Gives no consideration to the financial well being of MidAmerican
or its shareholders
* Deprives MidAmerican shareholders of any of the benefits and
savings achieved through its restructuring efforts
* Provides no opportunity to prepare for future industry change
<PAGE>
OCA's Proposal is Based on Incorrect Analysis
* The OCA proposal is based on setting rates on a 1995 test year --- a
year that is in no way representative of a typical year because
significant restructuring occurred at MidAmerican that was
improperly accounted for in the OCA proposal
* The OCA proposal incorrectly allocates costs between Iowa and
Illinois and proposes adjustments which have been historically
rejected by the IUB
OCA's Proposal Would Harm Economic Development Efforts
* MidAmerican plays a key role in Iowa's economic development efforts
* Customer confidence in prices, predictability in the future and the
flexibility to negotiate prices with large customers will be
critical to MidAmerican's economic development efforts
* OCA proposal will restrict MidAmerican's ability to support economic
development efforts
OCA's Proposal is Unrealistic
* We have not had time to do a complete study of the OCA's filing;
however, our preliminary analysis shows that even under traditional
"rate making," the reduction should be approximately what
MidAmerican has already voluntarily filed, and not what the OCA
proposes --- this proposal is basically headline grabbing
* Preliminary and incomplete list of issues with OCA adjustments,
calculations...
* The OCA proposes a return on equity (ROE) of 10.45%, which is
lower than the IUB has ever found reasonable; the OCA's
calculation is even less reasonable when it is recognized that
utilities such as MidAmerican are exposed to increased
business risk as a consequence of increased competition
* Merger savings are included in the 1995 test year and an
OCA-proposed adjustment to reduce labor costs, but the OCA
provides for no recognition of the cost to achieve those
savings, such as employee severance payments, early retirement
costs and relocation expenses
* The OCA's proposal provides a strong disincentive for
MidAmerican to seek further opportunities for cost savings
* The OCA made this filing in spite of the fact that
MidAmerican's pricing plan has already been docketed for
hearings by the IUB
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
DRAFT
August 4, 1996
10:30 am
Press Script
I'm going to spend a couple of minutes taking you through some of the highlights
of our proposal.
As you saw from our letter, our proposal is superior in every aspect to the
Wisconsin transaction. We're offering a significantly higher price and a large
dividend increase. And we're giving shareholders the option to choose cash or
stock.
This merger also benefits our shareholders. It would create a stronger utility
with the size and financial flexibility to better compete in the electric
marketplace of tomorrow. And it would be accretive immediately after closing. It
enhances our regionally focused service strategy.
One of the things I want to stress is that we know how to get this sort of thing
done. We've completed two mergers in the past five years. In each case, we
closed the transaction faster than any preceding utility. In this case, we
believe that we could
<PAGE>
DRAFT
August 4, 1996
10:30 am
complete a merger within nine to twelve months following the signing of a
definitive merger agreement. That means that we could complete this deal as fast
or faster than the Wisconsin transaction.
We believe this is an extremely compelling transaction and we expect IES' Board
of Directors to recognize the superiority of our proposal.
So those are the highlights as we see them. I'll be happy to answer any of your
questions.
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
<TABLE>
Company Comparisons
As of December 31, 1995 Except Shares Outstanding and Customer Counts
<CAPTION>
MidAmerican IES
Energy Company Industries Inc. Combined
--------------- --------------- ------------
<S> <C> <C> <C>
Total Assets (000) $ 4,523,521 $ 1,985,591 $ 6,509,112
Net Utility Plant (000)* $ 2,654,549 $ 1,311,761 $ 3,966,310
Non-Utility Property and
Investments (000) $ 819,303 $ 282,433 $ 1,101,736
Common Equity (000) $ 1,225,715 $ 612,346 $ 1,838,061
Total Capitalization (000) $ 2,768,982 $ 1,232,374 $ 4,001,356
Total Revenues (000) $ 1,723,644 $ 851,010 $ 2,574,654
Utility Revenues (000) $ 1,554,235 $ 750,810 $ 2,305,045
Net Income Available for
Common (000) $ 122,764 $ 64,176 $ 186,940
Average Shares
Outstanding (000) 100,401 29,202 --
Earnings per Share $ 1.22 $ 2.20 --
Dividends per Share $ 1.20 $ 2.10 --
Cash Flow From
Operations (000) $ 381,672 $ 195,831 $ 577,503
Utility Capital
Expenditures (000) $ 190,771 $ 159,530 $ 350,301
Generation Capacity (MW) 4,311 2,080 6,391
Peak Electric Load (MW) 3,553 1,824 5,377
MWH Sales 20,506,957 10,869,635 31,376,592
Miles of Electric
Transmission Lines 4,699 4,409 9,108
MCF Sales 99,744,629 29,664,072 129,408,701
</TABLE>
<PAGE>
<TABLE>
Company Comparisons
As of December 31, 1995 Except Shares Outstanding and Customer Counts
<CAPTION>
MidAmerican IES
Energy Company Industries Inc. Combined
--------------- ---------------- ------------
<S> <C> <C> <C>
Electric Customers (Average
Customers Per FERC FORM #1)
Residential 549,880 282,889 832,769
Commercial 71,005 47,947 118,952
Industrial 820 699 1,519
Other 9,786 462 10,248
------------ ------------ ------------
Total 631,491 331,997 963,488
============ ============ ============
Electric Revenues (000)
Residential $ 434,105 $ 216,270 $ 650,375
Commercial $ 252,427 $ 97,496 $ 349,923
Industrial $ 219,075 $ 199,840 $ 418,915
Other $ 189,040 $ 46,865 $ 235,905
------------ ------------ ------------
Total $ 1,094,647 $ 560,471 $ 1,655,118
============ ============ ============
Electric Revenues (%)
Residential 39.66% 38.59% 39.28%
Commercial 23.06% 17.39% 21.14%
Industrial 20.01% 35.66% 25.31%
Other 17.27% 8.36% 14.25%
Electric Sales MWH
Residential 4,767,608 2,689,915 7,457,523
Commercial 3,920,792 2,296,004 6,216,796
Industrial 5,351,933 4,248,168 9,600,101
Other 6,466,624 1,635,548 8,102,172
------------ ------------ ------------
Total 20,506,957 10,869,635 31,376,592
============ ============ ============
Electric Sales (%)
Residential 23.25% 24.75% 23.77%
Commercial 19.12% 21.12% 19.81%
Industrial 26.10% 39.08% 30.60%
Other 31.53% 15.05% 25.82%
Average Price per kWh
Residential $ 0.0911 $ 0.0804
Commercial $ 0.0644 $ 0.0425
Industrial $ 0.0409 $ 0.0470
</TABLE>
<PAGE>
<TABLE>
Company Comparisons
As of December 31, 1995 Except Shares Outstanding and Customer Counts
<CAPTION>
MidAmerican IES
Energy Company Industries Inc. Combined
--------------- ---------------- -----------
<S> <C> <C> <C>
Gas Customers (Average
Customers Per FERC FORM #2)
Residential 537,481 151,631 689,112
Commercial 56,602 20,965 77,567
Industrial 822 400 1,222
------------ ------------ ------------
594,905 172,996 767,901
============ ============ ============
Gas Revenues (000)
Residential $ 279,819 $ 84,562 $ 364,381
Commercial $ 128,501 $ 40,390 $ 168,891
Industrial $ 23,280 $ 8,790 $ 32,070
Other ** $ 27,988 $ 56,597 $ 84,585
------------ ------------ ------------
Total $ 459,588 $ 190,339 $ 649,927
============ ============ ============
Gas Sales (MCF)
Residential 57,153,915 16,302,038 73,455,953
Commercial 32,786,803 9,533,464 42,320,267
Industrial 6,221,774 3,098,308 9,320,082
Other ** 3,582,137 730,262 4,312,399
------------ ------------ ------------
Total 99,744,629 29,664,072 129,408,701
============ ============ ============
Average Price per Mcf
Residential $ 4.8959 $ 5.1872
Commercial $ 3.9193 $ 4.2367
Industrial $ 3.7417 $ 2.8370
Employees *** 3,602 2,635 6,237
* Excludes Power Purchase Contract of $212.1 million
** Includes Industrial Energy Applications, Inc. sales.
*** Full-time employees
</TABLE>
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
[STATEMENT TO BE READ BY MIDAMERICAN'S INVESTMENT
RELATIONS PERSONNEL IN RESPONSE TO INQUIRIES
CONCERNING IES' PRESS RELEASE.]
We are pleased that the IES board of directors will give full
consideration to our merger proposal.
The MidAmerican proposal is superior in all important respects to the
Wisconsin transaction. We trust that the IES board will reach the same
conclusion.
<PAGE>
SHARES OF IES INDUSTRIES INC. ("IES")
COMMON STOCK HELD BY MIDAMERICAN ENERGY COMPANY ("MIDAMERICAN"),
ITS DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES, OTHER
REPRESENTATIVES OF MIDAMERICAN AND
CERTAIN OTHER PERSONS WHO MAY SOLICIT PROXIES, AND
CERTAIN TRANSACTIONS BETWEEN ANY OF THEM AND IES
MidAmerican may solicit proxies against the IES/WPL Holdings,
Inc./Interstate Power Company merger. The participants in this solicitation may
include MidAmerican, the directors of MidAmerican (John W. Aalfs, Stanley J.
Bright, Robert A. Burnett, Ross D. Christensen, Russell E. Christiansen, John W.
Colloton, Frank S. Cottrell, Mel Foster, Jr., Nolden Gentry, James M. Hoak, Jr.,
Richard L. Lawson, Robert L. Peterson, Nancy L. Seifert, W. Scott Tinsman,
Leonard L. Woodruff), and the following executive officers and employees of
MidAmerican or its subsidiaries: Phil G. Lindner (Group VP Corp. Services), John
A. Rasmussen (Group VP and General Counsel), Ron W. Stepien (VP Strategic
Planning & Corp. Dev.), Larry M. Smith (Controller), Paul J. Leighton (VP &
Corporate Secretary), J. Sue Rozema (VP Investor Relations), Keith D. Hartje
(Mgr. Corp. Communications), Alan L. Wells (Mgr. Corp. Dev. & Strategy).
As of the date of this communication, MidAmerican had no security holdings
in IES. Regina Rae Huggins, a person who will solicit proxies, is the beneficial
owner of four (4) shares of common stock, no par value, of IES (the "IES Common
Stock"). John W. Colloton's wife is the beneficial owner of 250 shares of IES
Common Stock with respect to which Mr. Colloton disclaims any beneficial
ownership. Leonard L. Woodruff is the beneficial owner of 100 shares of IES
Common Stock.
Other than as set forth herein, as of the date of this communication,
neither MidAmerican nor any of its directors, executive officers or other
representatives or employees of MidAmerican, or other persons known to
MidAmerican, who may solicit proxies has any security holdings in IES except
that MidAmerican has not yet been able to obtain any information with respect to
the security holdings in IES, if any, of Robert A. Burnett, or James M. Hoak,
Jr. MidAmerican disclaims beneficial ownership of any securities of IES held by
any pension plan of MidAmerican or by any affiliate of MidAmerican.
Although Dillon Read & Co. Inc. ("Dillon Read"), financial advisors to
MidAmerican, do not admit that they or any of their directors, officers,
employees or affiliates are a "participant," as defined in Schedule 14A
promulgated under the Securities Exchange Act of 1934 by the Securities and
Exchange Commission, or that such Schedule 14A requires the disclosure of
certain information concerning Dillon Read, Ken Crews, James Hunt, Jeff Miller,
Jason Sweet, Forrest Williams, Jim Brandi, and Eliot Merrill, in each case of
Dillon Read may assist MidAmerican in such a solicitation. Dillon Read engages
in a full range of investment banking, securities trading, market-making and
brokerage services for institutional and individual clients. In the normal
course of their business, Dillon Read may trade securities of IES for their own
account and the account of their customers and, accordingly, may at any time
hold a long or short position in such securities. As of the most recent
practicable date prior to the date hereof as such information was available,
Dillon Read did not hold any securities of IES.
Except as disclosed above, to the knowledge of MidAmerican, none of
MidAmerican, the directors or executive officers of MidAmerican or the employees
or other representatives of MidAmerican named above has any interest, direct or
indirect, by security holdings or otherwise, in IES.
<PAGE>
