How you view Exelon (EXC), the country’s biggest operator of nuclear power plants, depends on how you view nuclear power itself. Is nuclear energy the green source of choice as prices of fossil fuels soar higher and the supply of them wanes?
Or will nuclear energy stagnate, as the industry faces serious safety issues and the storage of nuclear waste remains an unresolved concern? Worries about safety have intensified, of course, since Japan’s nuclear catastrophe in April.
At the same time, Exelon just agreed to buy Constellation Energy Group (CEG) for $7.9 billion. That purchase represents both a doubling-down on nuclear energy and a diversification away from it for Exelon.
It would be acquiring stakes in five more reactors. But it also would be acquiring a substantial retail energy business that can help support earnings until the nuclear business really takes off, assuming it ever does.
The companies predict the deal will close early in 2012. But utility mergers generally take a long time to complete because of the need for regulatory approval.
In this case, Exelon and Constellation will have to satisfy federal regulators as well as regulators in Maryland, New York, and Texas. Maryland officials have twice blocked takeovers of Constellation.
In the meantime, Exelon is expected to suffer through its worst earning drop in a decade next year, as its higher-priced power contracts end. The company’s per-share profit will plummet 25 percent in 2012, according to analysts’ estimates compiled by Bloomberg.
In the first quarter of this year, Exelon’s profit fell to 11 percent to $668 million from $749 million a year earlier. Revenue rose 13 percent to $5.05 billion.
Exelon forecasts that the deal with Constellation will boost revenue and lower costs by a total of $200 million next year and $260 million after 2013.
Some analysts are bullish on the merger. “Exelon’s generation would likely capture incremental margins through Constellation’s retail sales channels, while CEG’s retail business — effectively a short power position — would arguably be more manageable aligned with Exelon’s generation,” Deutsche Bank analysts write.
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