May 19, 2024

DealBook: Exelon to Buy Constellation Energy for $7.9 Billion

Exelon announced on Thursday that it would buy Constellation Energy in a $7.9 billion deal, the latest in a wave of consolidation among energy companies, particularly utilities.

Under the terms of the stock-for-stock transaction, Constellation investors would receive the equivalent of $38.59 a share, about 18 percent more than the 30-day average closing price of the stock. The combined entity would have a market value of roughly $34 billion.

“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’s chief executive, Mayo A. Shattuck III, said, in a statement. “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 utility space has been an active one for mergers and acquisitions, as companies have sought to cut costs and increase scale. On April 20, the energy producer AES said it would buy DPL, the parent company of Dayton Power Light, for $3.5 billion in cash. In January, Duke Energy announced it would acquire Progress Energy for $13.7 billion in stock.

Exelon and Constellation have mixed histories as deal-makers.

In 2009, Constellation, based in Baltimore, agreed to be sold to Berkshire Hathaway’s MidAmerican Energy Holdings for $4.7 billion. It eventually canceled the deal and instead sold some nuclear assets to Électricité de France for $4.5 billion.

In 2008, Exelon pursued a $7.5 billion hostile bid for NRG Energy. When it could not win over NRG’s shareholders, Excelon dropped the deal. DealBook earlier reported a potential deal between Exelon and Constellation.

Exelon anticipates the acquisition of Constellation will break even in 2012 and be accretive to earnings by 2013. After the deal closes, the combined entity, to be called Exelon, will be the No. 2 residential electricity and natural gas distribution company, covering 6.6 million customers in Maryland, Illinois and Pennsylvania. It will also be the largest competitive power generator, with more than 34 gigawatts of power generation and 226 terawatt-hours of expected output.

“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’s chief executive, John W. Rowe, said in a statement.

The deal, pending regulatory and shareholder approval, is expected to close by early 2012.

For Exelon, Barclays Capital, J.P. Morgan Securities, Evercore Partners and Loop Capital Markets served as financial advisers and Skadden, Arps, Slate, Meagher Flom as legal counsel. Morgan Stanley, Goldman Sachs and Credit Suisse Securities were Constellation’s financial advisers, and Kirkland Ellis acted as legal counsel.

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