Yesterday, in the pre-dawn darkness in midtown Manhattan, their tinkering under the hood was revealed: an $11.5 billion deal that will form the nation's second-largest electric utility portfolio and the largest energy supplier in markets where unregulated competition is allowed. It would also be the first of what are expected to be further such consolidations since Congress last summer repealed a 70-year-old law that limited mergers in the power industry.
The new $27 billion entity would begin, at least, with a complex dual identity. FPL and Constellation said the "mutual merger" would have dual headquarters in Juno Beach, Fla., and Baltimore. The company would keep the Constellation name, in part because a major area of growth will be selling energy beyond the core regulated markets the companies serve along the Atlantic seaboard. The new corporation will be registered in Maryland, where Constellation's fast-growing unregulated business is expected to expand and be the primary growth engine for the new company.
FPL stockholders, who will get one share for each of their shares, will wind up with about 60 percent of the company's shares after the stock-for-stock deal.
Constellation shareholders will get 1.444 common shares of the merged company for each Constellation share they own prior to the merger. That translates into a sale price of $62.02 per share, or a roughly 15 percent premium over the price just before news of the merger leaked last week.
Constellation shareholders will see their dividends rise by more than half because they will receive FPL's higher dividend rate after the merger.
Shares of Constellation fell $2.52, or 4 percent, to $59.10 in trading yesterday on the New York Stock Exchange, in part because investors were expecting FPL to pay a higher premium in the deal. However, the shares had climbed more than 8 percent after word of the merger leaked. FPL shares fell 19 cents yesterday to $42.76.
Constellation executives concede there will be some job losses in the deal, but say most can come from retirements and "natural attrition" over the next two years.
At the end of five years, some industry experts said, Baltimore could be positioned to hang on to the headquarters. Constellation has added hundreds of jobs to its downtown offices over the past three years, and officials from both FPL and Constellation said it was the primary reason for FPL's decision to merge.
The agreement calls for the merged company to maintain at least current levels of charitable and civic contributions in both cities for no less than 10 years. Constellation spends about $10 million annually on philanthropy in the Baltimore area.
"My sense is that it's very clear that it is not an acquisition," said Shattuck, 51, who will head the new company's unregulated merchant energy group.
That distinction is an important one to state regulators, who must sign off on the deal, and to Baltimore's political and civic establishment, which has seen countless numbers of the city's blue-chip corporations get bought by out-of-state companies.
"From the Constellation standpoint, we can now really pursue growth without restraint. ... This is essentially a strategic merger. This is by no means a cash-out," Shattuck told investors in a conference call.
A new severance deal, reached Sunday and filed with the SEC yesterday, guarantees that Shattuck will get $15 million in cash if the company pushes him out within a year or he leaves because his duties were reduced. He'd also get millions if he stays.