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Filed by Chesapeake Utilities Corporation Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Chesapeake Utilities Corporation
Commission File No.: 001-11590
Date: February 4, 2015
Chesapeake Utilities Corporation
Merger with Gatherco, Inc.
February 4, 2015
11 a.m. ET
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Forward Looking Statements and Other Disclosures
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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include statements regarding benefits of the proposed Merger, anticipated future financial operating performance and results, including estimates of growth and expectation that earnings will be accretive in its first full year of operation following the Merger. These statements are based on the current expectations of Chesapeake’s management. 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. These risks and uncertainties include the following: Gatherco may be unable to obtain the shareholder approval required for the Merger; conditions to the closing of the Merger may not be satisfied; problems may arise in successfully integrating Gatherco’s business; the Merger may involve unexpected costs or unexpected liabilities, or the tax treatment of or accounting for the Merger may be different from the companies’ expectations; Gatherco’s business may suffer as a result of uncertainty surrounding the transaction; the natural gas industry may be subject to future regulatory or legislative actions that could adversely affect the combined company; and the combined company may be adversely affected by other economic, business, and/or competitive factors post-transaction. Additional factors that may affect the future results of Chesapeake Utilities are set forth in its respective filings with the SEC, which are available at investor.shareholder.com/CPK/sec.cfm. Chesapeake Utilities undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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Forward Looking Statements and Other Disclosures (continued)
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed Merger, Chesapeake Utilities’ registration statement on Form S-4, which will include a proxy statement of Gatherco, as well as 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 CHESAPEAKE UTILITIES, GATHERCO AND THE PROPOSED MERGER. 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 Chesapeake Utilities at http://www.sec.gov, the SEC’s Web site. Free copies of Chesapeake Utilities’ SEC filings are also available on Chesapeake Utilities’ Web site at investor.shareholder.com/CPK/sec.cfm.
Chesapeake Utilities and Gatherco and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Gatherco’s shareholders in connection with the proposed merger. Information about the directors and executive officers of Chesapeake Utilities is set forth in the proxy statement for Chesapeake Utilities’ 2014 Annual Meeting of Stockholders, as filed with the SEC on a Schedule 14A on April 1, 2014 and Form 10-K filed with the SEC on March 6, 2014. Additional information regarding the interests of those participants and other persons who may be deemed participants in the Merger may be obtained by reading the registration statement, proxy statement/prospectus and other materials to be filed with the SEC regarding the proposed Merger when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.
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Merger Overview
Chesapeake Utilities Corporation (Chesapeake Utilities) and Gatherco, Inc. (Gatherco) have entered into a merger agreement whereby Chesapeake will acquire the outstanding stock of Gatherco
Gatherco will merge with a newly formed, wholly-owned subsidiary of Chesapeake Utilities, Aspire Energy of Ohio, LLC
Transaction is valued at approximately $59.2 million
Expected to close in the second quarter of 2015
Projected to be accretive to EPS during 2016 – the first full calendar year of operations
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Transaction Summary
Consideration
Gatherco shareholders will receive cash and shares of Chesapeake Utilities in exchange for their Gatherco shares and stock options
Approximately 593,005 shares will be issued to Gatherco shareholders pursuant to the transaction
Chesapeake Utilities Equity Consideration $29.9 Million
Cash Consideration 19.9 Million
Cash Consideration – Gatherco Stock Options 7.7 Million
Acquired Debt 1.7 Million
Total Purchase Price $59.2 Million
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Chesapeake Utilities Total Capitalization
(in thousands)
Shareholders’ Equity Long-Term Debt Short-Term Debt *
$650,000 $600,000 $550,000 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0
12/31/10 12/31/11 12/31/12 12/31/13 9/30/2014 ProForma**
$111,582 $82,282 $117,019 $165,044 $69,395 $165,044 $42,903 $73,174 $101,907 $117,592 $110,285 $89,642
$326,121 $278,773 $296,221 $240,780 $256,598 $226,239
Equity/Permanent Capitalization 71.6% 68.6% 71.6% 70.3% 64.2% 66.4%
Equity/Total Capitalization 58.2% 61.1% 60.0% 54.3% 54.5% 54.1%
*Short-term debt includes current portion of long-term debt.
** Pro Forma represents Chesapeake Utilities’ 9/30/2014 Total Capitalization, plus the consideration paid for Gatherco.
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Chesapeake’s Existing Service Areas
Delaware and Maryland
Natural Gas Interstate Transmission
Natural Gas Local Distribution
Propane Distribution
Virginia
Propane Distribution
Pennsylvania
Natural Gas Interstate Transmission
Propane Distribution
Florida
Natural Gas Intrastate Transmission
Natural Gas Local Distribution
Electricity Distribution
Combined Heat and Power Project
Propane Distribution
Gatherco/Aspire Energy of Ohio
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Chesapeake Business Structure
Regulated Energy
Natural Gas Distribution
Natural Gas Transmission
Electric Distribution
Unregulated Energy
Propane Distribution
Propane Wholesale Marketing
Natural Gas Marketing
Aspire Energy of Ohio, LLC
Chesapeake Utilities /
Aspire Energy of Ohio Management
Chesapeake Utilities’ management team remains unchanged
Outgoing Gatherco President and CFO to be retained as consultants for 12 months
All other Gatherco employees will be retained and incentivized to facilitate growth
Aspire Energy of Ohio will report to Elaine B. Bittner, Senior Vice President of Chesapeake Utilities
Aspire Energy of Ohio business
development will be supported by Chesapeake Utilities’ Strategic Development team
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Required Approvals and Next Steps
State Regulatory Approvals
Have obtained all necessary approvals regarding securities to be issued
Will be filing the appropriate notices
Securities and Exchange Commission
Filing and Review of S-4 and proxy statement
Other
NYSE listing application
Gatherco Shareholder Approval
Closing expected in second quarter of 2015
Manage comprehensive pre- and post- closing transition plans
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Overview of Gatherco’s Business
Established in 1997 in conjunction with the acquisition of certain Columbia Gas Transmission natural gas gathering assets in Ohio
Assets include 16 gathering systems and over 2,000 miles of pipelines in Central and Eastern Ohio
Provides natural gas gathering services and natural gas liquid processing services to over 300 producers, and supplies natural gas to over 6,000 customers in Ohio through the expanding Consumers Gas Cooperative, an independent entity which Gatherco manages under a long-term operating agreement
Exclusively provides wholesale natural gas to Columbia Gas of Ohio’s distribution systems, serving approximately 24,000 customers
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Natural Gas Continues to Have a Price Advantage
$30 $25 $20 $15 $10 $5 $0
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Henry Hub Natural Gas Spot Price
North American Spot LPG Propane Price / Mont Belvieu (Conversion Factor: /.091)
No. 6 3% Fuel Oil (Conversion Factor: /6.3)
No. 2 ULSD Fuel Oil (Conversion Factor: /.138)
Source: Bloomberg NYMEX
Provide natural gas to Columbia Gas of Ohio approx. 24,000 customers.
December 31, 2014
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Gatherco’s Natural Gas Supply Chain
Gather wellhead natural gas production.
Own and operate two (2) gas processing plants.
Own and operate ~2,000 miles of pipeline.
Provide natural gas to Consumers Gas Cooperative approx. 6,000 customers.
Buy and sell natural gas and natural gas liquids with
third-party marketers.
Transport gas to third-party transmission systems.
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Map of Gatherco Infrastructure
Ohio
16 systems spanning
Central and Eastern Ohio
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Strategic Rationale
Currently:
View this business as very similar to our current businesses
Gatherco already as a successful growth strategy
Transaction accretive in 2016 – the first full calendar year of operations
Looking Forward:
Gatherco’s growth strategy can be expanded
Opportunity to earn returns above utility returns
Footprint provides a foothold in a market with significant long-term growth potential
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Growth Strategies
Traditional Growth Strategies
Regulated Energy
NG transmission and distribution expansions
Residential and commercial customer growth in existing markets
On main conversions
Major industrial customers
Acquisitions
Unregulated Energy
Organic growth
Wholesale
Community Gas Systems
Startups
Acquisitions
Current Growth Strategies
Regulated Energy
Conversion programs for residential
and commercial customers
System reliability and infrastructure program
New applications for natural gas
Transportation service for power generation
Unregulated Energy
Compressed natural gas (CNG)
Liquefied Natural Gas (LNG)
Propane Fueled Vehicles
Combined Heat and Power projects (CHP)
Midstream Opportunities
Gatherco Acquisition
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Chesapeake’s Investment Proposition
Engaged employees that are focused on identifying opportunities to expand our service offerings within and beyond our current markets
Portfolio of strong, efficient utility and non-utility businesses that continue to focus on maximizing organic growth
Strong balance sheet and credit ratings, coupled with access to new capital
Expand capacity for growth as a result of increased business development resources and capabilities to develop new energy related business lines
Positioned to have sustainable dividend growth that is supported by earnings growth
Successful track record and focus on continued long-term growth
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Financial Metrics Performance Summary
Performance Metrics
Chesapeake Results
For periods ending 9/30/14 unless otherwise noted 1 Year 3 Year 5 Year
Capital Expenditures / Total Capitalization 19.1% 18.8% 22.7%
Earnings Per Share Growth (CAGR) 7.9% 9.6% 12.3%
Return on Equity 12.4% 12.0% 12.0%
Dividends Per Share Growth (CAGR) for the periods ending 12/31/14 5.3% 5.4% 5.1%
Earnings Retention Ratio 57.3% 54.8% 53.9%
Total Shareholder Return for the periods ending 12/31/14 27.1% 87.0% 171.5%
Note: Blue shading denotes performance that represents top quartile results relative to the peer group.
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Closing
THANK YOU! Michael P. McMasters, President & CEO 302.734.6799; mmcmasters@chpk.com Beth W. Cooper, Senior Vice President & CFO 302.734.6022; bcooper@chpk.com
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