Exelon CEO elaborates on merger talk


Exelon 2nd Quarter 2004 earnings release conference call
July 28, 2004

John Rowe, Exelon Chairman and CEO


I seem to have kicked off a fair amount of turmoil with an interview in Restructuring Today and I want to comment on that a little bit.

First, as you know, we do not and will not comment on any specific M&A [mergers and acquisitions] activity or specific rumours about that because there's no way to comment today and not have to keep it up to date tomorrow and that simply doesn't work.

My point in Restructuring Today was a much broader one. I think its entirely consistent with what Iíve been saying for three years: We believe at Exelon that there will be continued consolidation in our industry. We believe that if one is hard headed -- and I think in the Restructuring Today article I used the word "thick-headed" --- about one's financial criteria, that there will at some point in time be attractive opportunities. We look for such just like other people do.

We will continue to take the same hard-headed -- or "thick-headed" or, more elegantly, "disciplined" -- approach to looking at these things that we have promised to do. That is, to look at accretion and dilution very carefully . . . We will look at returns on capital very carefully.

We are only going to do something if at some time we can find a deal that provides real value to all of you. I believe our recent actions have demonstrated this discipline, most explicitly walking away from Boston Generating and walking away from the Illinois Power transaction when we couldn't get the associated deal. . . .

It's my opinion that in our industry we have sort of tides of harder times and easier times. We all thought once upon a time that restructuring would create the hard times. In fact, most utilities were able work out fair restructuring plans and do pretty well. Exelon has certainly done very well with restructuring. We think -- whether its utilities around the Northeast who have transition periods coming to an end or utilities in other parts of the country facing the need for new base stations -- there is going to be significant financial pressure in this industry. And that creates opportunities for people who know how to make money through cost savings. That's the kind of thing we keep our eyes on.

I think it is very strange that folks worry about what I will do in this respect. I'm now in the middle of my 20th year running utilities. While Exelon . . .did some expansion that we now regret, the only major M&A action I've ever taken was the Unicom PECO merger. I think all of you agree that that has worked very well since its inception. We have reduced costs well beyond what we promised, we've improved operating performance, we've delivered solid growth in operating earnings and dividends. We are building our plans through Exelon ways to continue to do that for the next several years.

Because of what's already happened in power markets, I don't see that we need a deal to continue to do that through 2007. I do think in the long run, consolidation on a very hard-headed basis is one of the few ways that any utility has to grow beyond the average -- and doing better for you than average is one of the things we're committed to do.

Another way of looking at this is: Our plan to significantly increase our dividend should give you comfort that once we complete our balance sheet strengthening, we plan to return more cash to shareholders. In no way are we trying to build a warchest for some sort of acquisition.

If we want to do a deal, we will subject it to the kind of financial criteria we have promised to do, and we will come to you for the necessary money to do a deal. If we canít convince you, we don't want to do one.

I hope that deals with the turmoil I created with the Restructuring Today article. I still think whether we talk about it or not, the pressures I described in that article are going to be real.