Exelon, CEG Merger: Birth of a Titan

Exelon Corporation ( EXC - Analyst Report ) has completed the proposed merger with Constellation Energy ( ) in a stock-for-stock transaction. The new organization will retain its identity as Exelon Corporation. Headquartered in Chicago, the merged company will trade under the symbol of EXC on the New York Stock Exchange.

In April last year, Exelon had entered into an agreement to acquire Constellation Energy, for about $7.9 billion. The shareholders of Constellation will receive 0.930 shares of Exelon common stock in exchange for per share of Constellation common stock.

The exchange ratio agreed upon represents an 18.1% premium to the 30-day average closing stock prices of Exelon and Constellation as of April 27, 2011. Post-merger shareholders of Exelon will enjoy 78% ownership of the combined company, while the rest will belong to Constellation shareholders.

The merger is expected to boost Exelon’s position. The company is well poised to become the nation’s leading competitive energy products and services provider in terms of load and customer base and also the biggest competitive power generator. The consolidated entity will also produce power at lower costs.

The merger will also enable them to jointly work on fuel innovation, increase efficiency and provide better options and rates to customers. The merged entity is expected to supply approximately 164 terawatt-hours per year to as many as 100,000 businesses and public sector companies and about 1 million residential customers.

Despite several positives, we are cautious about the uncertainties surrounding the integration, given Exelon’s unsuccessful attempts to acquire companies like NRG Energy Inc. ( ( NRG - Analyst Report ) in 2008, Public Service Enterprise Group Inc. ( ( PEG - Analyst Report ) in 2004 and Illinois Power Company in 2003.

In the current scenario, mergers and acquisitions in utilities sector are common phenomena. Recently, AES Corporation ( AES - Analyst Report ) acquired DPL in an all-cash transaction. The merger between Duke Energy Corporation ( DUK - Analyst Report ) and Progress Energy, Inc. ( ) is also currently in the process.

Exelon Corporation currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Headquartered in Chicago, Exelon is one of the nation’s largest electric utilities with approximately $19 billion in annual revenues. The company has one of the industry’s largest portfolios of electricity generation, a nationwide reach and enjoys a strong position in the Midwest and Mid-Atlantic.