Exelon Corporation (NYSE: EXC) and Pepco Holdings Inc. (NYSE: POM) have signed a definitive agreement to combine the two companies in an all-cash transaction valued at approximately $6.8 billion. The agreement, which has been unanimously approved by both companies’ boards of directors, brings together Exelon’s three top-performing electric and gas utilities – BGE, ComEd and PECO – and Pepco Holdings’ electric and gas utilities – Atlantic City Electric, Delmarva Power and Pepco – to create the leading Mid-Atlantic electric and gas utility.
The combined utility businesses will serve approximately 10 million customers and have a rate base of approximately $26 billion. The transaction will further expand Exelon’s regulated holdings, ensuring a balanced earnings mix as power prices recover.
The all-cash transaction consideration of $27.25 per share represents a 24.7 percent premium to Pepco Holdings’ closing price of $21.85 on April 25, 2014, and a 29.5 percent premium to the volume–weighted average share price over the last 20 trading days (ending April 25, 2014).
The acquisition is anticipated to be significantly accretive to Exelon’s adjusted earnings in the first full year after closing.
Exelon President and CEO Chris Crane will remain president and CEO of the combined company. Pepco Holdings Chairman, President and CEO Joseph M. Rigby, who previously announced his planned retirement, will remain in his current roles with Pepco Holdings until the closing of the transaction.
Exelon is headquartered in Chicago. As is the case with BGE in Baltimore, ComEd in Chicago and PECO in Philadelphia, Pepco Holdings utilities will retain their regional headquarters in May’s Landing, N.J. (Atlantic City Electric), Newark, Del. (Delmarva Power), and Washington, D.C. (Pepco). All utilities will remain focused on safety, customer service, reliability and infrastructure investment within their jurisdictions, while they work together to share best practices to continually improve performance for customers.
The transaction requires the approval of the stockholders of Pepco Holdings. Completion of the transaction is also conditioned upon approval by the Federal Energy Regulatory Commission, the District of Columbia Public Service Commission and several state commissions including the Delaware Public Service Commission, the Maryland Public Service Commission and the New Jersey Board of Public Utilities. The transaction is also subject to the notification and reporting requirements under the Hart-Scott-Rodino Act and other customary closing conditions.
The companies anticipate closing in the second or third quarter of 2015.
Barclays, Goldman, Sachs & Co. and Loop Capital Markets are serving as financial advisors and Kirkland & Ellis LLP is serving as legal counsel to Exelon. Lazard provided a fairness opinion and served as lead financial advisor to Pepco Holdings, Morgan Stanley provided a fairness opinion to the Pepco Holdings Board of Directors and Sullivan & Cromwell LLP and Covington & Burling LLP served as legal counsel to Pepco Holdings.