Exelon, Constellation Energy to combine in stock-for-stock merger

By Jennifer Lanning Drey

Savannah, Ga., April 28 - Exelon Corp. and Constellation Energy have signed a definitive agreement to combine the two companies in a stock-for-stock transaction that will provide a strong platform for growth and immediate financial benefits for both companies, Christopher Crane, Exelon's president and chief operating officer, said during a Thursday conference call held to discuss the transaction.

"This merger creates the largest competitive energy provider in the United States," said Crane, who will serve as chief executive officer of the combined company.

"We will create value by paring our industry-leading generation and retail wholesale platforms and remain focused on building in the competitive markets," he added.

Crane also said the combined company would retain a strong credit profile and investment-grade ratings.

"That's critical to effectively operate a capital-intensive business like ours across all points in the commodities cycle," he said.

Projected credit metrics for the combined company are above the 30% to 35% funds from operations to debt ratio that the company targets, excluding the utilities, he said.

In addition, the companies project earnings and free cash flow accretion in the first full year after taking into consideration the effects of purchase accounting.

A portion of the earnings and cash flow uplift will come from synergies, which are expected to be $200 million in the first year and grow to $260 million after 2013, Crane said.

The majority of the synergies will come from corporate consolidations, the integration of the two trading platforms and reduction of liquidity requirements, as the companies expect to reduce the consolidated, unregulated and corporate credit facilities by $3 billion to $4 billion, he said.

Strategic fit

In addition to the financial benefits, the combination of the two companies will bring together Exelon's clean energy supply with Constellation's customer-facing sales and marketing platform, the companies said.

"This combination gives us the scale and scope we want and creates the premier competitive energy producer and supplier at both the wholesale and retail level," John Rowe, Exelon's chief executive officer, said during the call.

"It's not just about bigger, it's about a sustainable platform for smarter growth," said Rowe who will retire upon closing of the transaction.

"Our combined balance sheet strength will support our customer-focused model with continued investments to grow our competitive businesses and expand the product offerings that we can deliver to our customers," Mayo Shattuck III, chief executive officer of Constellation, said during the call.

Upon completion of the merger, the resulting company will retain the Exelon name and be based in Chicago.

Exelon's power marketing business and Constellation's retail and wholesale business will be consolidated under the Constellation brand and be based in Baltimore.

Both companies' renewable energy businesses will also be located in Baltimore, and the three utilities within the new Exelon will remain stand-alone organizations.

Terms of transaction

The market capitalization of the combined company will be $34 billion with an enterprise value of $52 billion, the companies also said Thursday.

Under the terms of the transaction, Constellation's shareholders will receive 0.93 of a share of Exelon common stock in exchange for each share of Constellation common stock

Following completion of the merger, Exelon shareholders will own 78% of the combined company and Constellation shareholders will own 22% on a fully diluted basis.

The companies said they are committed to mitigating any competitive issues and expect to close the transaction in early 2012.

Constellation is an energy generation and utility business in Baltimore. Exelon is a Chicago-based electric utility.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.