Constellation Energy Group, Inc. (CEG) has agreed to acquire MXenergy in an all-cash transaction for a total base purchase price of $175.0 million. MXenergy’s 100.0% equity is currently owned by a number of large institutional investors among others. Constellation will purchase all of MXenergy assets subject to shareholder and regulatory approvals.
At closing, the shareholders of MXenergy are expected to receive cash in the range of $3.00–$3.28 per share. Additionally, they are expected to be paid approximately 91 cents per share upon settlement of customary escrow holdbacks that will result in a total potential cash consideration of up to $4.21 per share.
However, the final price per share will be subject to a number of factors, including final working capital balances and the amount escrowed ultimately released. The transaction is expected to close in the third quarter of 2011.
In connection with the buy-out, MXenergy has agreed to pay in full all amounts owed on outstanding Floating Rate Notes due 2011 and will redeem any and all outstanding 13.25% Senior Subordinated Notes due 2014 at a redemption price of 106.625% plus accrued interest.
Sempra Energy Trading has provided supplier finance to pay MXenergy since 2009 and voted in favor of the merger. In connection with the merger, MXenergy, Constellation and Sempra Energy Trading entered into a termination agreement under which MXenergy has agreed to pay just over $16.0 million in exchange for its Class B and Class C shares in MXenergy as well as the termination of outstanding hedge agreements subject to the closing of the merger.
Constellation intends to expand its mass market customer base to 1 million by the end of 2011. The company has already offered a choice to residential customers in Maryland, Washington, D.C. and parts of New Jersey and Illinois.
Constellation believes that the acquisition is an important vehicle for growth of its residential and small to mid-market commercial supply business. The MXenergy acquisition will add over 500,000 customers in some 15 states and two provinces of Canada.
Constellation Energy Group Inc. is a diversified energy company with regulated and merchant businesses. The visibility of its underlying earnings strength is enhanced by a geographically-disparate customer base and diversified power generation portfolio, as well as a strong balance sheet and stable regulated earnings.
All these positives are, however, offset by significant Maryland exposure, risks in the merchant power space, and pending regulatory cases. The company presently retains a short-term Zacks #4 Rank (Sell). We however have a long-term Neutral recommendation on the stock. In the near term, we would advise investors to accumulate its short-term Zacks #1 Rank (Strong Buy rating) peer like Portland General Electric Company (POR).
MXenergy is one of the nation's leading suppliers of natural gas and electricity to homeowners and small businesses. It has supplemented its retail energy sales products with offerings of renewable energy products, carbon offsets, and environmental educational programming through the creation of MXenergy TV, an On Demand cable channel designed to educate and inform on the issues of sustainability and green living.
Baltimore-based Constellation Energy Group Inc. is a diversified holding company for a group of energy businesses focused on wholesale power marketing and merchant generation. 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.
CONSTELLATN EGY (CEG): Free Stock Analysis Report
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