UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant þ Filed by a Party other than the Registrant ¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ¨ | Definitive Proxy Statement |
| þ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to § 240.14a-12 |
CH ENERGY GROUP, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
| þ | No fee required. |
| ¨ | Fee computed below per Exchange Act Rules 14a-6(i)(1) 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 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (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 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: |
 Shareholder Presentation
Overview of Fortis Transaction
Thursday, May 31, 2012 |
 2
Forward-Looking Statements
Additional Information about the Proposed Fortis Transaction and
Where to Find It
This communication is being made in respect of the proposed merger transaction
involving CH Energy Group and Fortis and may be deemed to be soliciting material relating to the
proposed transaction. In connection with the proposed acquisition of CH Energy
Group by Fortis, CH Energy Group filed a proxy statement with the SEC on May 9, 2012, and may file
other relevant materials with the SEC as well. The proposed transaction will be
submitted to CH Energy Group's shareholders for their consideration. Before making any voting or
investment decision, investors and shareholders of CH Energy Group are urged to
read the proxy statement, and other relevant materials filed with the SEC when they become
available, because they contain or will contain important information about the
proposed acquisition and related matters. The proxy statement has been mailed to CH Energy Group
shareholders. Investors and shareholders may obtain a free copy of the proxy
statement and other documents filed by CH Energy Group at the SEC's Web site, www.sec.gov. These
documents
(when
they
are
available)
can
also
be
obtained
by
investors
and
shareholders
free
of
charge
from
CH
Energy
Group
at
CH
Energy
Group’s
website
at
www.chenergygroup.com, or by contacting CH Energy Group's Shareholder Relations
Department at (845) 486-5204. Participants in the Solicitation of
Proxies Statements included in this presentation which are not historical in nature are intended
to be, and are hereby identified as, “forward-looking statements” for purposes of the safe
harbor provided by Section 21E of the Exchange Act. Forward-looking statements may be identified
by words including “anticipates,” “intends,” “estimates,” “believes,” “projects,”
“expects,” “plans,” “assumes,” “seeks,” and similar
expressions. Forward-looking statements including, without limitation, those relating to CH Energy Group, Inc.’s and Central
Hudson Gas & Electric Company’s future business prospects, revenues, proceeds, working
capital, investment valuations, liquidity, income, and margins, as well as statements relating
to CH Energy Group, Inc.'s proposed acquisition by a subsidiary of Fortis, Inc. and the expected terms and timing of the transaction, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those indicated in the
forward-looking statements, due to several important factors, including those identified
from time-to-time in the forward-looking statements. Those factors include, but are not
limited to: the possibility that various conditions precedent to the consummation of the
proposed Fortis transaction will not be satisfied or waived; the ability to obtain shareholder and
regulatory approvals of the proposed Fortis transaction on the timing and terms thereof;
deviations from normal seasonal weather and storm activity; fuel prices; energy supply and demand; potential future acquisitions; legislative, regulatory, and competitive
developments; interest rates; access to capital; market risks; electric and natural gas industry
restructuring and cost recovery; the ability to obtain adequate and timely rate relief; changes
in fuel supply or costs including future market prices for energy, capacity, and ancillary services; the success of strategies to satisfy electricity, natural gas, fuel oil, and
propane requirements; the outcome of pending litigation and certain environmental matters,
particularly the status of inactive hazardous waste disposal sites and waste site remediation
requirements; and certain presently unknown or unforeseen factors, including, but not limited to, acts of terrorism and other factors described in, or incorporated by
reference in, but are not limited to, CH Energy Group Inc.'s proxy statement filed with the SEC. CH
Energy Group and Central Hudson undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future events, or otherwise. Given these uncertainties, undue reliance should not be placed on the
forward-looking statements.
CH Energy Group, Fortis and certain of their respective directors and executive officers, under SEC
rules, may be deemed to be participants in the solicitation of proxies from shareholders of CH
Energy Group in connection with the proposed acquisition. Information about CH Energy's directors and executive officers may be found in its 2011 Annual
Report on Form 10-K filed with the SEC on February 16, 2012, and definitive proxy statement
relating to its 2012 Annual Meeting of Shareholders filed with the SEC on March 21, 2012.
Information about Fortis directors and executive officers may be found in its Management Information Circular available on its website at www.fortisinc.com. Additional
information regarding the interests of such potential participants in the solicitation of proxies in
connection with the proposed merger is included in the proxy statement filed with the SEC on
May 9, 2012 and may be included in other relevant materials filed with the SEC when they become available.
|
 FORTIS
TRANSACTION
On February 21, 2012, CH Energy announced an agreement with Fortis for a sale of
CH Energy at a price of $65.00 per share in cash
100% cash consideration
Locks in premium value at a time of cyclically high industry valuations
Fortis purchase price represents a 21.9x P/E multiple on 2011A EPS—at the
high end of these multiple ranges for comparable utility industry
transactions Transaction terms do not preclude other interested parties from
making a topping offer prior to shareholder approval
The Fortis federation business model will allow CH Energy to largely operate as an
independent entity, with little change in its day-to-day services
and operations Will have improved access to growth capital as a Fortis
affiliate 3
$65
per share
IN CASH
Compelling value for shareholders |
 4
FORTIS
TRANSACTION
Key transaction terms
ACQUIROR
Fortis Inc., the largest investor-owned distribution utility in
Canada, with assets of approximately $14 billion
CONSIDERATION
$65.00 per share in cash
FUTURE DIVIDENDS
CH Energy expects to pay its regular quarterly common stock
dividends (currently $0.555/share) in the ordinary course
through closing, subject to the discretion of its Board of
Directors
KEY CLOSING
CONDITIONS
No material adverse effect on CH Energy
CH Energy shareholder approval
Regulatory approvals
No financing condition for Fortis
BREAK-UP FEE
Approximately $19.7 million; 2% of implied equity value
OTHER
Customary non-solicit provision with fiduciary out for Board
12-month drop-dead date (with 6 month extension for
regulatory approvals, if necessary) |
 In May
2011, CH Energy was approached by a representative of Fortis to ascertain
CH Energy’s interest in pursuing a potential transaction with Fortis
Fortis
had
very
recently
agreed
to
pay
an
attractive
multiple
of
earnings
for
Central
Vermont
Public Service
Fortis, however, expressed unwillingness to participate in an auction
process Fortis had a publicly stated strategic objective of growing in the
U.S. through utility acquisitions
The Board conducted a strategic review and valuation of its standalone plan in the
summer of 2011
Concluded that it would be worth engaging with Fortis on a confidential basis to
determine what price/value they would see in CH Energy
Offer represented multiple of 20.4x 2011E EPS and a 19.7% premium over the closing
price of CH Energy common stock on the last trading day prior to the
offer 5
FORTIS
TRANSACTION
On November 28, 2011, Fortis, at the request of CH Energy, provided its initial
indicative
offer
of
$62.70
in
cash
per
share
of
CH
Energy
common
stock
How did our Board maximize shareholder value?
|
 CH
Energy’s Board determined CH Energy should seek a higher price from Fortis and
provide further access to confidential information to encourage Fortis to find
additional value, but not to approach other potential transaction
partners The Board considered several factors regarding process, including
the limited universe of potential transaction partners, Fortis
unwillingness to participate in an auction, risks of leaks and further
diversion of management and employees, and the ability to seek merger agreement
terms that would not preclude alternative proposals post-signing and prior to
shareholder approval
After additional due diligence, CH Energy instructed Fortis to provide its
“best and final” offer
On
February
13,
2012
Fortis
submitted
an
offer
of
$64.20
in
cash
per
share
Agreed to a 2% break-up fee after extensive negotiation
CH Energy’s Board continued to seek an additional increase in price to at
least $65.00 per share
Fortis agreed to a $65.00 per share all-cash price, and the parties entered
into the merger agreement on February 20, 2012
To date, no other party has approached CH Energy regarding an alternative
transaction 6
FORTIS
TRANSACTION
How did our Board maximize shareholder value?
|
 Secures premium for CH Energy shareholders, on top of CH Energy’s
already above-peer and historically high trading value and trading
multiples Cash consideration
Locks in value at a time of cyclically high valuations for the industry
Eliminates downside from potential industry dynamics, including
rate/regulatory risks
Eliminates downside from potential macroeconomic changes, including
increases in interest rates and dividend tax rates, which could adversely
affect CH Energy’s stock price
Significant value premium vs. standalone prospects
Eliminates risks to value/stock price associated with potential inability to
achieve long- term strategic plans
7
FORTIS
TRANSACTION
Benefits of the transaction |
 Full
and fair value Offer evaluated by experienced financial advisor (Lazard) to
be fair, from a financial point of view, to CH Energy shareholders
Continuation of quarterly common stock dividends pre-merger close
Limited alternatives (particularly M&A) available
Low break-up fee (2% of equity deal value) if a superior offer arises
Fortis is a large, high quality company who has a demonstrated history of
growing successfully through prior acquisitions
Benefits
to
customers
and
commitment
to
charitable
contributions
enhance
probability of closing
8
FORTIS
TRANSACTION
Benefits of the transaction
Fortis price is at the top end of financial advisor’s private market
valuation range Process involved significant negotiation with Fortis over
time, including two increases in their offer price
|
 9
COMPLETION OF
STRATEGIC SHIFT
In 2011, CH Energy completed its “strategic
shift”
Further shareholder upside is limited
given:
More moderate EPS growth (rate)
going forward (beyond 2012)
Trading at healthy premium to peers
Historically low interest rate
environment
Potential increase in taxation of
dividends
Insufficient scale to pursue significant
value-enhancing growth projects
Ongoing regulatory risk
Limited universe of alternate acquirors
Divested renewable energy
portfolio
Use proceeds to repurchase
stock, retire debt
Focus on energy delivery:
Invest in Central Hudson’s
delivery system
Grow Griffith’s customer base
Improve service quality and
customer satisfaction
Strategic shift reduced
business risk; CH Energy
share price reacted favorably
to
refocus
on
the
core
business |
 10
COMPLETION
OF
STRATEGIC
SHIFT
2011 EPS
$2.97
2010 EPS
$2.44
5-YEAR SHAREHOLDER RETURN
STRONG INCREASE IN EPS
Source:
FactSet.
Note:
Trading data as of February 17, 2012 (last trading day prior to transaction announcement).
1
Here
and
throughout
this
presentation,
CH
Energy
peers
are
Consolidated
Edison,
Northeast
Utilities,
NorthWestern,
NSTAR,
Pepco,
UIL
and
WGL.
2
Based on Management estimates provided to Fortis (and included in proxy filings).
Management
has
created
significant
shareholder
value
over
the
past
several
years
2012E
EPS
$3.47
17%
INCREASE
22%
INCREASE
CHG
52.6%
CHG
Peers
1
41.9%
S&P
500
3.7%
Significant
growth
in
EPS
from
2010
–
2012E;
this
growth
rate
is
unsustainable
going
forward
2 |
 11
TRADING
PERFORMANCE
CH
Energy
was
trading
near
its
all-time
high
CH ENERGY 10-YEAR HISTORICAL TRADING PRICE
Fortis
Price:
$65.00
9.5% Premium
Transaction
Represents 9.5%
Premium to All-
Time High
Source:
FactSet.
Note:
Trading data as of February 17, 2012 (last trading day prior to transaction announcement).
1
All-time high closing price of $59.37 occurred on December 29, 2011.
1
1 |
 12
TRADING
PERFORMANCE
NTM P/E PERFORMANCE—LAST 20 YEARS
CH Energy trading at a forward P/E premium
Source:
FactSet.
Note:
Trading data as of February 17, 2012 (last trading day prior to transaction
announcement). 10-YEAR TREASURY YIELD—LAST 20 YEARS
High absolute P/E and relative to both utility peers and vs. S&P Interest rates, which are at historic lows, typically
exhibit a strong negative correlation with utility market valuations |
 13
Fortis
Price:
18.7x
Fortis
Price:
9.2x
ATTRACTIVE VALUE
PROPOSITION
Proposed price is at attractive valuation
2012E EPS
PRECEDENT RANGE
1
: 15.0x –
19.5x
2012E EBITDA
PRECEDENT RANGE
1
: 8.3x –
9.0x
Recent Transactions
Gaz Métro–CVPS:
19.6x
AGL–Nicor:
18.1x
AES–DPL:
12.4x
Exelon–
Constellation:
11.9x
Recent Transactions
Gaz Métro–CVPS:
NA
AGL–Nicor:
7.7x
AES–DPL:
NA
Exelon–
Constellation:
5.9x
Note:
Based on Management estimates; see proxy filing for additional detail.
1
Reflects transaction multiples based on Lazard’s analysis of the relevant metrics, after
adjusting for certain outliers. 2
Multiples
reflect
1-year
forward
multiples
as
of
respective
transaction
announcement
dates.
Does
not
represent
comprehensive
list
of
precedent
transactions
reviewed.
Fortis purchase price is near the top of the range of selected comparable transactions 2
2 |
 14
ATTRACTIVE VALUE
PROPOSITION
Proposed price is at attractive valuation
2013E EPS
PEER TRADING RANGE: 13.5x –
16.4x
2012E EPS
PEER TRADING RANGE: 14.4x –
16.8x
Fortis
Price:
18.7x
CHG
Pre-
Announce:
16.6x
Fortis
Price:
19.1x
CHG
Pre-
Announce:
16.9x
Note:
Based on Management estimates; see proxy filing for additional detail.
20% premium
to midpoint of
peer range
28% premium
to midpoint of
peer range
Fortis purchase price is well above the range of peer P/E trading multiples
CH Energy had been trading at a P/E multiple premium to its peers prior to the
transaction announcement
14.4x
16.8x
5.0
8.0
11.0
14.0
17.0
20.0x
13.5x
16.4x
5.0
8.0
11.0
14.0
17.0
20.0x |
 15
ATTRACTIVE VALUE
PROPOSITION
2013E EBITDA
PEER TRADING RANGE: 7.4x –
8.6x
2012E EBITDA
PEER TRADING RANGE: 7.8x –
8.8x
Proposed price is at attractive valuation
Fortis
Price:
9.2x
Fortis
Price:
9.1x
CHG
Pre-
Announce:
8.5x
CHG
Pre-
Announce:
8.4x
11% premium
to midpoint
of peer range
14% premium
to midpoint
of peer range
Note:
Based on Management estimates; see proxy filing for additional detail.
10.0x
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
8.8x
7.8x
10.0x
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
8.6x
7.4x
Fortis purchase price is well above the range of peer EV/EBITDA trading multiples
|
 16
ATTRACTIVE VALUE
PROPOSITION
Our Board reviewed a variety of methodologies
used by Lazard to evaluate the transaction
Note:
See proxy filing for additional detail.
Fortis
Price:
$65.00
$47.44
$49.50
$48.25
$50.75
$47.75
$52.25
$59.74
$57.00
$56.00
$58.00
$55.75
$62.75
40.00
50.00
60.00
$70.00
52-Week
High/Low
Comparable
Company
Multiples—
Consolidated
Comparable
Company
Multiples—
Sum-of-
the-Parts
Discounted
Cash Flow—
Consolidated
Discounted
Cash Flow—
Sum-of-
the-Parts
Selected
Precedent
Transactions
The Fortis purchase price exceeds the value expected to be derived from the
standalone plan and eliminates many risks associated with executing on such
plan |
 Transfers regulatory, operational, interest rate, and general
market/utility valuation risk away from shareholders
Fixed
price,
cash
transaction
avoids
“equity
valuation
risk”
(both
market and company specific) present in stock-for-stock deals
Low
break-up
fee
“leaves
the
door
open”
for
competing
bidders prior
to shareholder approval (however, prospect unlikely given high
valuation and limited potential buyer universe)
Transaction terms give CH Energy operational flexibility during
closing process (including ability to declare and pay regular quarterly
common dividends in the ordinary course)
17
FORTIS
TRANSACTION
Merger terms minimize risk to shareholders
Break-up fee as a % of purchase price well below peer utility industry
transaction average |
 The
Board concluded that the Fortis offer represents a significant premium over
CH Energy’s standalone value and other
strategic alternatives
Low break-up fee does not preclude other
interested parties from making a topping offer
prior to shareholder approval
The Board recommends that shareholders
vote for the transaction
18
SUMMARY
RECOMMENDATION |
 Proxy
Statement
Mailed:
May
14
Special
Meeting
of
Shareholders:
June
19
FERC
FTC/DOJ—Hart-Scott-Rodino Act
Committee on Foreign Investment in the U.S.
NY PSC
19
TRANSACTION
TIMETABLE
Next steps
Shareholder approval schedule
Pursue required regulatory approvals
BEST ESTIMATE OF
CLOSING DATE
1
ST
QUARTER
OF 2013*
*Could change
Closing can occur once all
approvals are received |