Exelon Corporation (EXC) along with Constellation Energy Group Inc. (CEG) filed an application for approval by the Federal Energy Regulatory Commission (FERC) related to the proposed merger between the two companies.
The filing with FERC demonstrates the companies’ strong commitment to ensure that the merger will not give way to market threats or competitive concerns. In the filing, the companies commit that the combined company will, within 180 days after the closing of the transaction, enter into contracts to divest three Constellation Energy generating stations totaling 2,648 megawatts (MW) of generating capacity.
The facilities are located in the PJM Interconnection LLC market, which is the only market where there is a material overlap of generation owned by both companies. The companies would stop all plant divestitures no later than 30 days after getting all regulatory approvals.
PJM is a Regional Transmission Organization which is part of the Eastern Interconnection grid, operating an electric transmission system serving all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
Earlier on April 28, 2011, the two companies entered into a definite agreement whereby Exelon will acquire Constellation Energy for about $7.9 billion. Exelon is expected to issue 0.93 of its shares for every share of Constellation owned by the latter’s shareholders.
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 merger is approved by the shareholders of both the companies and the union is subject to overcoming some regulatory hurdles. The companies expect to close the merger by the first quarter of 2012.
The Exelon-Constellation merger allows concentration of nuclear power generation and brings economies of scale. This is important in the aftermath of the Fukushima Dai-Ichi plant atomic disaster in Japan, which has raised questions about nuclear safety and is sure to reduce the pace of future construction.
Definitely heartening is the news that the U.S. Nuclear Regulatory Commission has recently approved Exelon’s request to boost its nuclear generation capacity in two of its units. This in a way suggests that the nuclear plants were properly run by Exelon and it can safely add more generation to its existing nuclear capacity.
We appreciate this prudent and beneficial merger agreement as it will create the nation’s cleanest power generation fleet, explore opportunities in commercial solar energy development and also focus on efficiency.
Exelon Corporation currently retains a Zacks #3 Rank (short-term Hold rating). We maintain a longer-term Neutral recommendation on Exelon.
Based in Chicago, Illinois, Exelon Corporation, a utility services holding company, engages in the generation, transmission, distribution and sale of electricity to residential, commercial, industrial and wholesale customers.
CONSTELLATN EGY (CEG): Free Stock Analysis Report
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