Entergy 2007 Annual Report Download - page 5

3
Entergy Corporation and Subsidiaries 2007
who share and have supported Entergy’s point of view on nuclear
or carbon are rewarded for their patience.
Unlocking Value – Separation of Our Non-Utility Nuclear Business
In 2007, our Board of Directors approved plans to pursue the
spin-o of Entergy’s non-utility nuclear business to our shareholders
and the formation of a nuclear services joint venture to be owned
equally by Entergy and the spun-o entity, referred to as SpinCo.
While the operating results of the non-utility nuclear plants
contribute substantially to Entergy’s current share price, market
capitalization and protability, the full value of the business has
not and is unlikely to be realized or recognized embedded in a
regulated “utility”. Over the last nine years, shareholders have put
considerable capital at risk as we started and grew this business.
While shareholders have seen substantial rewards, the proposed
structure provides a very real opportunity for full value realization
while maintaining the safety, security and operational excellence
of our entire (utility and non-utility) nuclear eet.
Following the spin, Entergy shareholders will hold two distinct
equities – Entergy stock, comprised of the regulated utility
business, referred to as Entergy Classic, and a 50 percent stake in
the nuclear services joint venture, and stock in SpinCo, comprised
of the non-utility nuclear plants, a power marketing operation, and
the remaining 50 percent stake in the nuclear services joint venture.
SpinCo will be uniquely positioned as the only pure-play, emission-
free nuclear generating company in the United States, at a time
when the states, the nation and the world move inevitably toward
a less carbon-intensive future.
e option value of this transaction cannot be overstated. In
the spin-o, shareholders will receive a highly liquid, publicly
traded stock that we believe will be better recognized for its innate
and scarcity value. Good corporate governance dictates that the
decision to buy, hold or sell this uniquely positioned segment of
our business and this industry be made available to individual
shareholders to execute consistent with their individual points of
view and risk appetite. is structure provides owners what we
would consider a free option.
As part of the spin-o from the regulated utility, SpinCo will
have the opportunity to maintain an ecient risk prole for its
business, while aspiring to strong merchant credit relative to
others in the sector. Conceptually, that means increased borrowing
capacity and increased exibility in the decisions on when or
whether to enter into nancial hedges for the plants’ output. at is
particularly valuable in an illiquid long-term market that has yet to
reect the full value of carbon-free energy. Robust cash projections,
with line of sight at $2 billion 2012 earnings before interest, income
taxes, depreciation and amortization, support assuming more
nancial risk or accepting greater volatility in return for greater
cash ows than is practical as part of the “utility”. Specically,
SpinCo expects to execute roughly $4.5 billion of debt nancing,
subject to market terms and conditions – a stark contrast to when
we started this business and it had to be all internally nanced
with shareholder money, limiting our dividend payout and other
potential investments.
e nuclear services joint venture retains the talented, experienced
nuclear operations team that currently operates our non-utility
nuclear assets and Nebraska Public Power District’s Cooper Nuclear
Station, reecting Entergy’s commitment to maintaining safety,
security and operational excellence. As a premier nuclear operator,
the joint venture will have broad experience operating boiling
and pressurized water reactor technologies, enabling it to grow
through oerings of nuclear services to third parties, including plant
operations, decommissioning and relicensing.
As part of the spin-o, Entergy Corporation expects to receive
$4 billion, $1.5 billion of which is targeted to reduce debt. e
remaining $2.5 billion is targeted for a share repurchase program,
$0.5 billion of which has already been authorized by the Entergy Board
of Directors, with the balance to be authorized and to commence
following completion of the spin-o. Post-spin, Entergy Classic’s
dividend payout ratio aspiration ranges from 70 to 75 percent.
Post-spin, primary focus from Entergy’s leadership team will
be on the utility business, enabling continued value creation and
growth. We will pursue strategies that benet our customers
through greater energy eciency, including new, more ecient
generating technologies, better price signals and more eective
usage of our product. Entergy Classic oers a unique utility investment
We are pursuing plans to spin off
our non-utility nuclear assets to our
shareholders and form a nuclear
services joint venture owned equally
by Entergy and SpinCo.
VALUE TRILOGY