UPDATE: Exelon To Acquire Deere's Wind Energy Unit For $900 Million

Exelon Corp. (EXC) agreed to acquire Deere & Co.'s (DE) wind energy unit for about $900 million Tuesday, giving the nation's largest nuclear generator an entrance into the wind generation business.

The deal ends a foray by the world's largest manufacturer of farm machinery into wind farms as Deere sells a unit with limited connection to its core business. The sale comes as deals continue to pick up in the U.S. power sector with companies repositioning themselves amid a prolonged slump in electricity prices and uncertainty over federal regulations.

Under the deal, Exelon will pick up 36 wind farms mostly in the Midwest and Texas able to produce 735 megawatts, or enough to power 160,000 to 220,000 homes, plus a pipeline of projects in development. The acquisition is valued at $860 million with a provision for Deere to get an additional $40 million once construction begins on planned projects. Exelon said it will fund the acquisition with debt.

"We are looking for that intersection of economics and environment," Sonny Garg, president of Exelon Power, said in an interview.

The deal continues Exelon's bet on the future of emissions-free generation, which the company sees as growing in value as pollution regulations tighten and climate change rules advance. That strategy has stumbled as proposed federal legislation putting a price on carbon dioxide emission collapsed this year. Exelon shares have declined 17% this year.

Yet Garg said Exelon sees demand for renewable energy growing, while the economics of the Deere deal means it will add to earnings starting in 2012.

Exelon shares recently trade down 10 cents to $40.42, while Deere shares climbed 77 cents to $63.75.

Deere's energy business was launched in 2005 with money from its customer and dealer financing company as it tried to capitalize on its vast experience working in rural areas where most wind farm are developed. Deere has invested more than $1.1 billion in wind projects, but scaled back last year in the wake of lower credit company income and falling prices for electricity.

Deere said Tuesday the transaction will result in after-tax charge of $25 million that wasn't included in its fourth-quarter earnings estimate of $375 million for the period.

Macquarie Capital analysts described Exelon's purchase price in a note to clients as "relatively attractive," but warned that only 75% of the generation has long-term power sales agreement. They said the deal is likely a bid by Exelon to add stability to earnings and cash flow, which have been a growing concern as favorable power sales hedges expire in 2012.

Exelon will face the same challenges as other wind developers. Slumping power prices and uncertainty around federal incentives have made it hard to ink long-term sales agreement with utilities for new projects. Garg said Exelon won't develop additional wind farms without purchase agreements for their output.

Deals in the power sector have picked in recent months with Dynegy Inc. (DYN) selling itself to Blackstone Group LP (BX). As part of that deal, NRG Energy Inc. (NRG) will buy several power plants from Blackstone. Constellation Energy Group Inc. (CEG) has made deals for power plants in Massachusetts and Texas recently as well.

Exelon expect the sale to close in the fourth quarter.

-By Mark Peters, Dow Jones Newswires; 212-416-2457; mark.peters@dowjones.com

(Tess Stynes and Bob Tita of Dow Jones Newswires contributed to this article.)

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