Exelon Is Said to Be Near $7.7 Billion Stock Deal for Constellation Energy
Exelon Corp. (EXC), the largest operator of U.S. nuclear power plants, is near an agreement to buy Constellation Energy Group Inc. (CEG) for about $7.7 billion, adding stakes in five reactors in Maryland and New York, according to a person with knowledge of the matter.
In the transaction under discussion, Constellation shareholders would get 0.93 Exelon share for each of their shares, said the person, who declined to be identified because the talks are private. Based on Exelon’s closing stock price of $41.49 yesterday, that would value Constellation at $38.59 a share, a 12.5 percent premium to its closing price.
Exelon, based in Chicago, may announce a deal as soon as today, said three people with knowledge of the matter. If completed, it would be Exelon’s largest transaction. The company was formed by the merger of Peco Energy and Unicom in 2000, with the combined company then valued at $7.14 billion.
Constellation operates three nuclear plants in Maryland and New York. Exelon has specialized in buying reactors at a fraction of the cost to build them and selling the power on competitive markets.
“Constellation has a substantial retail marketing business and Exelon has a whole lot of wholesale power to sell,” said Paul Patterson, a New York-based utility analyst at Glenrock Associates LLC.
Exelon’s latest planned purchase comes after setbacks to nuclear reactor construction projects in the competitive U.S. markets of Maryland and Texas, and amid concerns about the safety of atomic power in the wake of the crisis at the Fukushima Dai-Ichi plant in Japan.
“The deal makes a lot of sense in terms of nuclear concentration, because of the economies of scale,” said Daniele Seitz, a New York-based utility consultant. “Expanding their nuclear generation is a positive, especially considering that future construction will be at a very slow pace.”
NRG Energy Inc. (NRG), the largest U.S. independent power producer, this month canceled its plans to build two new reactors at a Texas nuclear plant, citing diminished prospects after a partial meltdown at Tokyo Electric Power Co.’s Dai-Ichi plant spread radiation across parts of Northern Japan.
Constellation in October withdrew from a joint venture to build a new reactor with Electricite de France SA, citing excessive costs and a dim economic outlook for power prices. Southern Co. (SO) and Scana Corp. (SCG), regulated utilities that don’t have to compete on price, are continuing plans to build new reactors in Georgia and South Carolina with financing backed by state-imposed rates.
The Right Price
Constellation owns Baltimore Gas & Electric, which delivers power at regulated rates. Its service territory extends within a few miles of Exelon’s Peco utility in Philadelphia.
“We’d like more regulated assets, if the price is right,” Exelon Chief Executive Officer John W. Rowe, 65, said yesterday on an earnings call with investors. “We’d like more generation assets, especially nuclear and gas, if the price is right. We like more renewable, if the price is right and we get enough contracts. We like safer channels to market and we won’t say anything about any specifics.”
Exelon has tried unsuccessfully three times to buy other power companies since 2003, and Constellation has been the target of two failed bids.
Paul Elsberg, a spokesman for Chicago-based Exelon, and Lawrence McDonnell, a Constellation spokesman, declined to comment.
EDF, seeking a foothold in the U.S. to build reactors designed by Paris-based Areva SA (CEI), defeated a $9.5 billion offer in 2008 for all of Constellation from Warren Buffett’s Berkshire Hathaway Inc. The next year, EDF bought a minority stake in Constellation’s nuclear plants for $4.5 billion in cash.
The French utility still has a 7.3 percent holding in Constellation, according to data compiled by Bloomberg. Paris- based EDF spokeswoman Carole Trivi declined to comment on a possible offer from Exelon.
Constellation used the money to shore up its energy- marketing business and avert bankruptcy after the 2008 financial collapse. The company’s shares have risen 19 percent since it rejected the Buffett offer.
In the plan now being discussed with Exelon, Constellation CEO Mayo Shattuck, 56, would become chairman of the combined company, and Chris Crane, now the president of Exelon, would become CEO, succeeding Rowe, one of the people familiar with the matter said. The talks started last year, the person said.
Rowe built Exelon into the largest U.S. generator of nuclear power. He failed in attempts to buy NRG Energy Inc. for $14.3 billion in 2008, Public Service Enterprise Group Inc. (PEG) for $25.9 billion in 2004 and Illinois Power Co. for $2.2 billion in 2003.
Shattuck, a former banker, expanded Constellation by selling power to corporations and other large customers in states that allow competition with utility monopolies. He reached a $14.8 billion deal to sell Constellation to NextEra Energy Inc. (NEE), the largest U.S. wind-power generator and owner of Florida’s largest utility. The deal collapsed in 2005, with NextEra citing interference by officials in Maryland.
U.S. utility transactions accelerated this year, as companies sought to cut overhead and borrowing costs to finance new plants, new power lines and pollution controls. About 30 power company deals valued at $43 billion have been announced this year, compared with $37.6 billion for all of 2010.
With 2010 sales of $10.9 billion, Constellation’s competitive marketing and power-generation businesses accounted for 76 percent of revenue, according to data from filings compiled by Bloomberg.
Constellation shares closed at $34.30 and rose as much as 11 percent in after-hours trading. Exelon rose 32 cents to $41.49 at 4:15 p.m. in New York Stock Exchange composite trading.
Platts reported earlier yesterday that the companies may announce a combination.
In January, Duke Energy Corp. (DUK) announced plans to acquire Progress Energy Inc. (PGN) for $13.7 billion in stock, creating the largest U.S. utility. On April 20, AES Corp. (AES), the U.S. power producer with operations in 28 countries, said it agreed to buy DPL Inc. (DPL), based in Dayton, Ohio, for $3.5 billion in cash.
“The industry has been consolidating for a long time, and it will probably continue for quite a while,” Patterson, the Glenrock analyst, said.
Exelon owns the largest group of U.S. nuclear power plants with 17 reactors at 10 stations in Illinois, Pennsylvania and New Jersey.
-With assistance from Mark Chediak in San Francisco and Mike Lee in Dallas. Editors: Jennifer Sondag, Charles Siler