PSE&G 2004 Annual Report Download - page 6

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Substantial synergies should result from the merger. Excluding the
one-time costs to achieve these benefits, the merged company
expects to realize synergies of approximately $400 million pre-tax
in the first full year after closing, growing to $500 million by the
second year. Approximately 70 percent of the synergies will come
from unregulated businesses and 30 percent from the regulated
utilities. Savings are expected from a variety of sources, including
operational efficiencies, improved supply-chain sourcing and
workforce reductions of approximately 5 percent of a consoli-
dated workforce of 28,000 employees. We will seek to minimize
the impact on employees through attrition and retirements, and
many will find new opportunities as part of a larger company.
The merger also addresses the key issue of leadership succession
at PSEG. The new and larger organization envisaged under our
merger agreement will have as its CEO John Rowe, Exelon’s
chairman, president and CEO, one of the most experienced and
successful executives in our industry. John understands how to
accomplish the vision we share of the ideal business model for
the utility industry. It will be my privilege to work together with
John and the associates of both organizations to realize this
vision, and thereafter to serve in a non-executive capacity as
chairman of the board until my planned retirement in March 2007.
Finally, the merger provides a stronger foundation for continuing
to reward shareholders with attractive long-term total returns
through a combination of dividends and earnings growth.
Our management philosophy has always been guided by a long-
term approach to creating shareholder value. Over the past five
years PSEG delivered a total shareholder return of over 93 percent,
outperforming the major utility industry averages and considerably
outpacing the return of the S&P 500.
Dividends have long been a key way that PSEG delivers share-
holder value: PSEG has paid annual dividends for 97 consecutive
years. In 2004, we increased our dividend modestly, from $2.16
to $2.20 per share. Our Board of Directors recently approved
a further one-cent increase in the quarterly dividend, raising
the annual indicated dividend rate to $2.24 per share. Looking
ahead, the merger agreement provides that our shareholders
will be kept whole with respect to the dividend payout.
Employees across the PSEG family of companies deserve recog-
nition for a milestone accomplishment in 2004: They enjoyed
their safest year in the 101-year history of our firm. Their per-
formance builds on nearly a decade of impressive safety results.
Exelon is also committed to safe work practices, and we will
continue to drive for a safer work environment for the benefit
of our employees.
Turning to business results, 2004 was particularly challenging
for PSEG Power, our wholesale domestic energy business.
Competition intensified. Markets were especially soft for
new gas-fired generation, including our two Midwest plants.