In the latest of a string of mergers in the utility sector, Exelon on Thursday said it would buy Constellation Energy in a $7.9 billion deal. The agreement would bring together Exelon’s large nuclear fleet and Constellation’s “customer-facing” business, creating a platform for growth, the companies said in a joint statement.

The combined entity—whose market value would be roughly $34 billion—will retain the Exelon name and be headquartered in Chicago. Exelon’s power marketing business (Power Team) and Constellation’s retail and wholesale business will be consolidated under the Constellation brand and be headquartered in Baltimore. Both companies’ renewable energy businesses will also be headquartered in Baltimore, and the three utilities within the new Exelon—Baltimore Gas and Electricity, ComEd, and PECO—will remain standalone organizations.

“This merger creates the number one competitive energy provider with one of the industry’s cleanest and lowest-cost power generation fleets and one of the largest commercial, industrial and residential customer bases in the United States,” Exelon Chairman and CEO John W. Rowe said.
Rowe is expected to retire upon closing of the Exelon-Constellation transaction. Under the agreement, Constellation CEO Mayo A. Shattuck III will become executive chairman of the combined company. Exelon President and Chief Operating Officer Christopher M. Crane will become president and CEO.

The stock-for-stock transaction will give Constellation investors about $38.59 a share—18% more than the 30-day average closing price of the stock. Following completion of the merger, Exelon shareholders will own approximately 78% of the combined company and Constellation shareholders approximately 22% on a fully diluted basis. “The combination is anticipated to be break-even to Exelon’s adjusted earnings in 2012; in 2013, it is expected to be accretive to earnings by more than 5 percent,” Exelon said in a statement.

“The combination of these two companies will drive innovation and value for customers by combining Exelon’s abundant clean energy supply and Constellation’s leading customer-facing sales and marketing platform,” Constellation CEO Shattuck said. “This enterprise will have the scale and financial strength to drive expansion in competitive energy markets as well as new investment in the next wave of clean generation and sustainable products and services.”

The merger will create an entity that will serve millions of customers across 38 states, the District of Columbia, and the Canadian provinces of Alberta and Ontario. It will also own and operate more than 34 GW of power generation capacity (226 TWh of expected output)—including the nation’s largest nuclear fleet.
More than half the company’s generation profile will be made up of nuclear power (55%), 24% will be gas-fired, and 8% will be hydropower or other renewables.

The marriage between the companies also calls for the sale of three Constellation coal-fired power plants: Brandon Shores and H.A. Wagner in Maryland’s Anne Arundel County, and C.P. Crane in Baltimore County.

Courtesy: POWERnews, Exelon, Constellation