Filed by Duke Energy Corporation
Commission File No. 1-4928
Pursuant to Rule 425 under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: Deer Holding Corp.
Commission File No. 132-02302
CONFIDENTIAL
MERGER Q&A FOR DEA
NUMBERS
-------
What are the terms?
The merger will be accomplished by Duke acquiring all of the shares of Cinergy
in exchange for shares of Duke. Shareholders of Cinergy will receive 1.56
shares of Duke stock for every share of Cinergy stock they own which
represents a premium of 13.4% as of Friday's close.
What's the ownership?
Approximately 76% Duke, 24% Cinergy at 1.56 exchange ratio.
What approvals are needed for the transaction?
Approvals required by FERC; OH, NC, SC, IN and KY state utility commission;
SEC, DOJ, NRC; and shareholders. Crescent may have to be sold to be in
compliance with PUHCA regulation if PUHCA can't be repealed or changed.
However, we would anticipate that we would have ample time for a divestiture
to allow for a manner consistent with best interest of all parties.
How long to close?
We anticipate closing during the summer of 2006.
What about the dividend?
The dividend will be increased from $1.10 to $1.24 (12.7%) effective in 3Q '05
for existing Duke Energy shareholders.
What will the combined scope be?
Based on year-end 2004 data, the company will have approximately 29,000
employees (pre-synergies); 3.7 million retail electric customers; 1.7 million
retail gas customers; 155,000 miles of electric lines; 25,000 MW regulated
generation; 16,000 MW merchant generation; $70 billion assets; $27 billion
revenue.
SYNERGIES
---------
How much value will be created from synergies?
The transaction will add value after the first full year of operation with
higher earnings and will increase in future years. Cost efficiencies are
estimated to reach $400 million a year by the third year.
How many employee terminations are expected?
While specifics are not known at this time, this transaction is expected to
result in the reduction of about 1,500 employees. Reductions are expected to
be spread among the corporate, utility operations and unregulated operations.
What about at the merchant level?
There are an estimated $95 million of year one savings associated with this
consolidation. No personnel changes will occur immediately. Specific locations
for, number of, workforce reductions will be determined during the transition
period.
MERCHANT SIDE
-------------
Why are we merging?
One of our corporate objectives this year is to build a sustainable business
model for DENA. This merger will allow DUK and CIN to capture synergies and
value at multiple levels, particularly in the merchant business. This will
create stronger utility and unregulated platforms and diversification of
portfolio fuel and geography.
How do Cinergy's merchant assets help DENA?
Cinergy's merchant fleet is fueled entirely with coal and very concentrated.
The combined fleet will have a better fuel mix and market diversity with a
presence in New England, western markets and the Midwest. Our gas position in
the Midwest complements Cinergy's coal position in that region.
What's the impact to DEI?
While Cinergy has some international properties, a process has been underway
to divest these interests. We are not anticipating any changes to our
international operations and the focus for DEI is to continue to work toward
double-digit returns.
Any DENA plants into rate base?
No. Cinergy is working through an agreement it has for its merchant fleet to
provide market-rate power to retail customers. In Indiana and Kentucky, the
existing rate structure will remain in place. We do intend to consolidate all
the merchant generation in MISO and PJM into a single operating group
Long-term for merchant side?
Our long-term strategy includes preserving/growing our position. The merchant
units will have more scale and be more fuel and geographically diverse which
is what we had been striving for. We will be better positioned to pursue
deregulated opportunities, and we will have more ability to grow our gas and
trading business.
Will we still be looking for a JV partner for DENA?
JV opportunities still hold merit around a subset for the combined merchant
and trading operation. However, our immediate goal is to concentrate on making
the transition between Duke and Cinergy go smoothly.
Where will offices be based?
The new company's corporate headquarters will be located in Charlotte. The
operational headquarters for the utilities will remain unchanged. Duke Energy
Gas Transmission will remain in Houston, along with certain other commercial
operations. DEFS and Crescent are unchanged.
NEXT STEPS
----------
Where do we go from here?
We will be working to obtain regulatory approvals while an internal
integration team begins designing the combined structure of the companies. At
this point, it's not advisable to contact employees at the other company
unless you are part of the integration team. We will keep you updated on
developments as they occur.
What's the process as far as organizing the structure?
At the corporate level, Paul Anderson will retain chair, Jim Rogers will be
president and CEO, and Fred Fowler will be president and CEO of gas
operations, reporting to Rogers for operations and Anderson on strategy. Other
senior management positions TBD. At the merchant level, RBE and a Cinergy
counterpart will lead a transition team to determine the type of structure
required to combine the two companies and what type of leadership roles are
required. The best candidate from either company will be selected. Once the
leadership team has been determined, each leader will then be responsible for
determining the need for staffing at his or her level. It will be a fair
process and the most qualified individuals will be chosen as we enter this new
phase.
What will happen to overlapping positions?
There will likely be some overlap identified and reductions are expected to
occur to resolve the redundancy. Current employees whose positions are
eliminated will be offered severance package.
What kind of severance package?
While it is premature at this time to discuss severance details, the package
for DENA employees was recently enhanced and the minimum severance package is
currently 24 weeks of base pay.
Will anyone have to relocate?
It's reasonable to think that some employees may be asked to relocate. Those
who are asked to relocate and choose not to relocate, and whose current
position is eliminated, may be offered severance benefits.
What happens to stock options?
Plan documents will govern the resolution of existing stock options and other
forms of benefits.
* * *
Forward-Looking Statements
This document includes statements that do not directly or exclusively
relate to historical facts. Such statements are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These forward-looking statements
include statements regarding benefits of the proposed mergers and
Restructuring Transactions, integration plans and expected synergies,
anticipated future financial operating performance and results, including
estimates of growth. These statements are based on the current expectations of
management of Duke and Cinergy. There are a number of risks and uncertainties
that could cause actual results to differ materially from the forward-looking
statements included in this document. For example, (1) the companies may be
unable to obtain shareholder approvals required for the transaction; (2) the
companies may be unable to obtain regulatory approvals required for the
transaction, or required regulatory approvals may delay the transaction or
result in the imposition of conditions that could have a material adverse
effect on the combined company or cause the companies to abandon the
transaction; (3) conditions to the closing of the mergers and the
restructuring transactions may not be satisfied; (4) problems may arise in
successfully integrating the businesses of the companies, which may result in
the combined company not operating as effectively and efficiently as expected;
(5) the combined company may be unable to achieve cost-cutting synergies or it
may take longer than expected to achieve those synergies; (6) the transaction
may involve unexpected costs or unexpected liabilities, or the effects of
purchase accounting may be different from the companies' expectations; (7) the
credit ratings of the combined company or its subsidiaries may be different
from what the companies expect; (8) the businesses of the companies may suffer
as a result of uncertainty surrounding the transaction; (9) the industry may
be subject to future regulatory or legislative actions that could adversely
affect the companies; and (10) the companies may be adversely affected by
other economic, business, and/or competitive factors. Additional factors that
may affect the future results of Duke and Cinergy are set forth in their
respective filings with the Securities and Exchange Commission ("SEC"), which
are available at www.duke-energy.com/investors and www.cinergy.com/investors,
respectively. Duke and Cinergy undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Additional Information and Where to Find It
In connection with the proposed transaction, a registration statement
of Deer Holding Corp., which will include a joint proxy statement of Duke and
Cinergy, and other materials will be filed with the SEC. WE URGE INVESTORS TO
READ THE REGISTRATION STATEMENT AND PROXY STATEMENT AND THESE OTHER MATERIALS
CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT DUKE, CINERGY, DEER HOLDING CORP., AND THE PROPOSED
TRANSACTION. Investors will be able to obtain free copies of the registration
statement and proxy statement (when available) as well as other filed
documents containing information about Duke and Cinergy at http://www.sec.gov,
the SEC's website. Free copies of Duke's SEC filings are also available on
Duke's website at www.duke-energy.com/investors, and free copies of Cinergy's
SEC filings are also available on Cinergy's website at
www.cinergy.com/investors.
Participants in the Solicitation
Duke, Cinergy and their respective executive officers and directors may be
deemed, under SEC rules, to be participants in the solicitation of proxies
from Duke's or Cinergy's stockholders with respect to the proposed
transaction. Information regarding the officers and directors of Duke is
included in its definitive proxy statement for its 2005 Annual Meeting filed
with the SEC on March 31, 2005. Information regarding the officers and
directors of Cinergy is included in its definitive proxy statement for its
2005 Annual Meeting filed with the SEC on March 28, 2005. More detailed
information regarding the identity of potential participants, and their direct
or indirect interests, by securities, holdings or otherwise, will be set forth
in the registration statement and proxy statement and other materials to be
filed with the SEC in connection with the proposed transaction.