News Column

Exelon Picking Up Pepco for $6.8 Billion in Cash

April 30, 2014

Julie Wernau, Chicago Tribune

April 30--Exelon Corp. announced a deal Wednesday to buy Washington, D.C.-based utility Pepco Holdings Inc. for $6.8 billion in cash.

With the company's nuclear plants struggling against more competitive forms of power, the transaction would increase the company's reliance its regulated utilities.

In addition to Commonwealth Edison Co. in Chicago, Exelon owns utilities in Baltimore and Philadelphia and would now own electric and gas utilities in New Jersey, Delaware and Washington, D.C. to serve a total of 10 million customers.

Chris Crane, chief executive at Exelon, said he will remain president and CEO of the combined company in Chicago. Pepco's CEO Joseph Rigby is retiring.

The companies said the deal is expected to close in the second or third quarter of next year. It requires several approvals: stockholder at Pepco, the Federal Energy Regulatory Commission and several state public service commissions.

If it goes forward, this would be the first major transaction for Crane and for Exelon since it merged with Constellation Energy in 2012 in a deal worth $7.9 billion.

The largest owner of nuclear power in the nation, Exelon has been leaning more heavily on its regulated utilities in recent years. With depressed power prices and increasing competition from wind and natural gas, the company's nuclear plants haven't been rolling in the profits they once did for Exelon and the company has threatened plant closures if conditions don't improve.

In the meantime, the company has focused on increasing the benefits its receives from the regulated utilities it owns. For instance, at ComEd in Chicago, the company worked a deal with the legislature to build out a "smart" digital electric grid and make other improvements that will increase the profits it receives for maintaining that equipment going forward.

A part of the deal with Pepco, Exelon has agreed to improve reliability at the three utilities and to maintain three regional headquarters. It is also providing $100 million into a "customer investment fund" to assist low income customers, energy efficiency measures and other consumer-facing programs.

The all-cash transaction at $27.25 per share is a 25 percent premium to Pepco's closing price of $21.85 April 25 and a 30 percent premium over the company's last 20 trading days.

Exelon's deal also includes a bridge loan of $7.2 billion from Barclays and Goldman Sachs. The company said it expects permanent financing will include a combination of equity, long-term debt and cash.

An Exelon earnings call is scheduled for 10 a.m. to discuss the transaction. Both CEOs will be on the call.

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Original headline: Exelon buying Pepco for $6.8 billion

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