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Exelon, Constellation to Merge in $8 Billion Stock Deal

Exelon Corp. and Constellation Energy Group announced Thursday that they have agreed to merge in a stock-for-stock deal valued at about $8 billion.

If the deal is approved by shareholders and regulators, the new company would retain the Exelon name and be headquartered in Chicago. Under the agreement, Constellation shareholders would receive 0.93 shares of Exelon in exchange for each of their Constellation shares. Based on Exelon's closing price of $41.49 Wednesday, Constellation shareholders would receive $38.59/share, for a total equity valued at $7.9 billion.

After the merger, Exelon shareholders would own about 78% of the combined company, and Constellation shareholders would own the remaining 22%. The companies complete the deal by early 2012.

Exelon stock was down 66 cents to $40.83/share in midday trading Thursday on the New York Stock Exchange (NYSE), a decline of 1.6%. Meanwhile, Constellation stock was up 83 cents to $35.13/share in midday trading on the NYSE, a gain of 2.42%.

The merger partners said the combined company would have the nation's cleanest power generation fleet, with about 55% relying on nuclear power, 24% on natural gas and 8% on renewables.

It would also become the nation's largest energy provider in terms of load -- with about 165 terawatt hours -- and customers, serving millions of households across 38 states, the District of Columbia and the Canadian provinces of Alberta and Ontario. It also would be the nation's second-largest residential electricity and gas distribution company, serving 6.6 million customers in Maryland, Illinois and Pennsylvania; and become the nation's top competitive power generator with more than 34 GW of power generation and 226 terawatt hours of expected output. The company would have the nation's largest nuclear fleet with 19,000 MW.

"Both Exelon and Constellation have demonstrated their commitment to sustainability and competitive markets, helping drive innovation, efficiency, customer choice and better rates," Exelon CEO John Rowe said. "Together, we will be an even stronger advocate for achieving these ideals."

Mayo Shattuck III, CEO of Baltimore-based Constellation, added that the merger "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. It represents a unique and exciting opportunity for the customers and communities we serve nationwide and in Maryland."

Exelon's power marketing business, Power Team, would be consolidated with Constellation's retail and wholesale business under the Constellation brand and headquartered in Baltimore after the merger closes. Both companies' renewable energy businesses would also be headquartered in Baltimore. Three utilities under the consolidated Exelon -- BGE, ComEd and PECO -- will remain standalone organizations and retain their respective headquarters in Baltimore, Chicago and Philadelphia.

A marriage of Exelon and Constellation would also need approval from the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission and several other state and federal agencies.

It is not the first time Exelon has attempted to merge with other companies. Stockholders of NRG Energy Inc. rejected Exelon's hostile takeover bid in July 2009 (see NGI, July 27, 2009), and Exelon scrapped plans to merge with Public Service Enterprise Group (PSEG) in September 2006 (see NGI, Sept. 18, 2006). The FERC had approved both mergers. Meanwhile, Constellation and FPL Group Inc. canceled plans to merge in October 2006 (see Daily GPI, Oct. 26, 2006).

Christine Tezak, an energy analyst with Robert W.Baird & Co., said an Exelon-Constellation merger faces revamped regulatory hurdles since the Department of Justice and the Federal Trade Commission changed their merger rules last summer. She added that state regulators were "likely to be a key hurdle."

"New Jersey state regulators sought conditions on the [Exelon-PSEG] merger that were unacceptable to the merging parties," Tezak said Thursday. "Significant ratepayer concessions may be sought by any of the impacted states, in particular Maryland and Illinois, separate from any federal review."

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