Nuclear Power Producer Exelon To Buy Pepco For $6.83 Billion
Exelon Corp, the largest U.S. nuclear power producer, said it would buy Pepco Holdings Inc for $6.83 billion to create the biggest electric and gas utility in the U.S. Mid-Atlantic region.
The deal will allow Exelon to sell more power at stable rates set by regulators at a time when an abundance of cheap natural gas is dragging down power prices on the open market.
"We view this transaction in a positive light as it further reduces Exelon's consolidated exposure to the vagaries of the wholesale power market," BMO Capital Markets analyst Michael Worms wrote in a note.
After the deal, as much as 65 percent of the company's earnings are expected to be derived from regulated businesses compared with roughly 55 percent now, he said.
Utilities are also seeking to consolidate as they struggle with falling electricity consumption due to increased energy efficiency and a weak economy.
Exelon's $27.25 per share cash offer represents a near 20 percent premium to Pepco's Tuesday close of $22.79 on the New York Stock Exchange.
Pepco's shares were trading at $26.80 before the bell on Wednesday. Exelon shares were untraded.
Pepco operates utilities in the Washington area, Delaware, Maryland and New Jersey, serving about 2 million customers.
Exelon's utilities deliver electricity and natural gas to more than 6.6 million customers in central Maryland, northern Illinois and southeastern Pennsylvania.
The combined entity will serve about 10 million customers, Exelon said in a statement.
UTILITY DEALS
There have been several multi-billion dollar utility deals in the past two years, including Duke Energy Corp's $13.7 billion acquisition of Progress Energy and AES Corp's $3.5 billion takeover of DPL Inc.
Exelon itself bought Constellation Energy for $7.9 billion in 2011.
Barclays, Goldman Sachs & Co and Loop Capital Markets are serving as financial advisers to Exelon. Kirkland & Ellis LLP is the legal counsel.
Lazard is Pepco Holdings' financial adviser. Sullivan & Cromwell LLP and Covington & Burling LLP are the legal counsel.
Exelon said on Wednesday the deal was expected to "significantly" add to its adjusted earnings in the first full year after closing.
The company also reported a lower-than-expected profit, hurt by weak energy prices and a fall in nuclear and coal output.