Exelon-CEG Progress on Merger - Analyst Blog
February 21 2012 - 9:30AM
Zacks
Constellation
Energy (CEG) and Exelon Corporation (EXC)
announced that the Maryland Public Service Commission or MPSC
approved their merger. The MPSC's order adds new conditions, but
retains many of the terms of the settlement reached in December
2011 by the companies, the State of Maryland, the Maryland Energy
Administration, the City of Baltimore and the Baltimore Building
and Construction Trades Council.
Per the agreement, the merger will
provide a package of benefits for Maryland, the City of Baltimore
and BGE customers totaling more than $1 billion and is expected to
create more than 6,000 jobs statewide.
Earlier, on April 28, 2011, Exelon
entered into a definite agreement to acquire Constellation Energy,
for about $7.9 billion. The exchange ratio agreed upon represents
an 18.1% premium to the 30-day average closing stock prices of
Exelon and Constellation as of April 27, 2011. Following the
completion of the merger, Exelon shareholders will have 78%
ownership of the combined company, while the rest will belong to
Constellation shareholders. The companies expect to close the
merger by early 2012.
Headquartered in Chicago, Exelon is
one of the nation’s largest electric utilities with approximately
$19 billion in annual revenues. The company has one of the
industry’s largest portfolios of electricity generation capacity,
with a nationwide reach and strong positions in the Midwest and
Mid-Atlantic. Exelon distributes electricity to approximately 5.4
million customers in northern Illinois and southeastern
Pennsylvania and natural gas to approximately 494,000 customers in
the Philadelphia area.
This merger will create the
nation’s premier competitive energy products and services supplier
in terms of load and customers as well as the biggest competitive
power generator with the largest nuclear fleet in the U.S. The
consolidated entity will also produce power at much lower costs.
The merger will also enable them to jointly work on fuel
innovation, increase efficiency and provide better options and
rates to customers.
The Exelon-Constellation merger has
received approval from the shareholders of Exelon and
Constellation. Required regulatory approvals or reviews have been
completed by the New York Public Service Commission, the Public
Utility Commission of Texas, the Department of Justice, and the
Nuclear Regulatory Commission.
Despite obvious positives to be
reaped from such a consolidation, the deal came after both the
companies showed a dubious track record of failing to acquire or be
acquired by other companies. On a few occasions, Exelon has made
unsuccessful attempts to clinch acquisitions. The target companies,
for instance, were NRG Energy Inc. (NRG) in 2008,
Public Service Enterprise Group Inc. (PEG) in 2004
and Illinois Power Company in 2003.
Constellation Energy came close to
be acquired twice before both the deals fell through.
NextEra Energy Inc.'s (NEE) attempt to buy
Constellation was thwarted in 2005 by the interference of state
officials. Another deal to be acquired by Berkshire Hathaway failed
in 2008.
Constellation Energy is a leading
competitive supplier of power, natural gas and energy products and
services for homes and businesses across U.S. It owns a diversified
fleet of generating units, totaling approximately 12,000 megawatts
of generating capacity, and is a leading advocate for clean,
environmentally sustainable energy sources, such as solar power and
nuclear energy. The company delivers electricity and natural gas
through Baltimore Gas and Electric Company, its regulated utility
in Central Maryland.
In the near term, given the merger
pending approval with the Federal Energy Regulatory Commission and
weak numbers posted by Constellation Energy in the recently
reported fourth quarter of 2011, we are maintaining our Zacks #5
Rank (short-term Strong Sell rating) on the stock. This implies
that the stock is expected to perform below par the broader U.S.
equity market over the next 1–3 months. We are, however, Neutral on
Constellation Energy in the long term.
CONSTELLATN EGY (CEG): Free Stock Analysis Report
EXELON CORP (EXC): Free Stock Analysis Report
NEXTERA ENERGY (NEE): Free Stock Analysis Report
NRG ENERGY INC (NRG): Free Stock Analysis Report
PUBLIC SV ENTRP (PEG): Free Stock Analysis Report
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