Tags: Constellation Energy Group | CEG | Exelon Corp. | EXC | NextEra Energy | NEE | utility

Constellation a Strong Merger Partner

By Dan Weil   |   Friday, 15 Jul 2011 05:10 PM

Constellation Energy Group (CEG) is doing something right. Exelon Corp. (EXC), the largest operator of U.S. nuclear power plants, agreed in April to buy the company for $7.9 billion. The combined entity would become the biggest seller of electricity in the country.

To be sure, the merger isn’t a done deal. The companies expect it to close early next year. But it must be approved by shareholders of both companies and a raft of regulators, including the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, state regulators in Maryland, New York, and Texas, and the Justice Department.

While most analysts expect the deal to go through, they say Maryland regulators and the Justice Department represent the biggest obstacles.

Exelon has tried without success to buy other power companies three times since 2003. It had agreed to a $14.8 billion sale of NextEra Energy (NEE), owner of Florida’s largest utility, in 2005, only to see that deal collapse. NextEra blamed Maryland officials.

Constellation leads the list of retail power suppliers in the United States, with a 14 percent share of the commercial and industrial market, according to Morningstar data. In addition, it supplies 5 percent of the country’s wholesale-power market.

An old-fashioned win-win

The company is looking for more power generation assets, and the Exelon deal would be very helpful in that respect.

Analysts see the hook-up as beneficial for both companies. “We believe the planned merger would provide the scale and financial strength for the expansion of the combined company's presence in the competitive energy markets that neither company would have on its own,” writes Standard & Poor’s analyst Justin McCann.

The joint utility would be poised for recovery in the power markets and well positioned if regulators go on the war path against fossil fuels and their carbon emissions, he says.

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