Exelon Pays $900 Million to Become Wind-Power Owner, Buying Deere Unit

Exelon Corp., the largest U.S. utility owner, is making its first purchase of wind-power plants, agreeing to pay as much as $900 million for Deere & Co.’s renewable-energy unit.

The 735 megawatts of wind capacity, enough to power as many as 220,000 homes in eight U.S. states, will add to 2012 profit and advances Exelon’s 2008 promise to reduce carbon-dioxide emissions, the Chicago-based company said in a statement today. Exelon owns the largest group of U.S. nuclear reactors, which also generate power without producing greenhouse gases.

The deal includes $860 million for existing turbines and $40 million if Deere, based in Moline, Illinois, starts construction of 230 megawatts of projects in advanced development before the deal closes by year’s end, Exelon said. About 75 percent of existing output is sold under long-term agreements and a total of 1,468 megawatts is in some stage of development, the company said.

“They got it for a low price and they did not compromise their position as a power producer with low carbon-dioxide emissions,” said Daniele Seitz, a consultant at Dudack Research Group in New York. “Exelon expects there will be U.S. legislation on carbon dioxide.”

Legislation to curb U.S. emissions has stalled in the Senate. Senator John Kerry, a Massachusetts Democrat, said last month he’s working on a measure the chamber may consider after November elections.

Prior Deals

The value of turbines has plunged this year as the recession eroded budgets of municipally owned utilities, which had been major buyers of wind power, Seitz said. That opened the door for Exelon, which was unable to complete the acquisition of two power producers in the past four years.

Exelon walked away from its $17.8 billion purchase of Public Service Enterprise Group Inc. in 2006 after New Jersey utility regulators demanded concessions. It dropped a $7.53 billion hostile bid for NRG Energy Inc. in 2009 after a rebuff by shareholders.

“They were not going to pay a premium,” Seitz said. “Exelon is a company with $1 billion of free cash flow a year, so this is a small deal for them.”

Deere, whose profit for the last fiscal year fell 57 percent, said in February it had retained Goldman Sachs Group Inc. as a financial adviser for the potential sale of the wind business, in which it invested more than $1 billion. The world’s largest farm-equipment maker said today it expects to record a $25 million charge for the sale against fourth-quarter earnings.

Increasing Demand

The Deere turbines will be the first owned and operated by Exelon. Exelon sells power from five wind projects owned by other companies.

“We expect to see increasing demand for clean, efficient wind power at a national level,” Exelon Chief Executive Officer John W. Rowe said in the statement. The purchase “adds diversity to our generation fleet and provides more options for future growth.”

Exelon said it will finance the purchase with debt at its power-generation unit. Exelon Generation’s debt is rated BBB, the second-lowest investment grade, by Standard & Poor’s and A3 by Moody’s Investors Service, the fourth lowest investment grade.

Barclays Plc acted as financial adviser to Exelon. Foley & Lardner LLP served as legal advisers and McDermott Will & Emery advised for certain tax matters, the company said.

The agreement is subject to approval from the Federal Energy Regulatory Commission and the Texas Public Utilities Commission, Exelon said in a filing today.

Exelon rose 20 cents to $40.72 at 4:01 p.m. in New York Stock Exchange composite trading. Deere gained 29 cents to $63.27.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.

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