Constellation reportedly takeover target of Chicago power company

Constellation Energy Group is reportedly in the final stages of takeover negotiations that could see it absorbed by the Chicago-based power company Exelon Corp., a deal that would usher Baltimore's last Fortune 500 company headquarters out of town.

For Constellation, the deal comes less than three years after the company narrowly averted bankruptcy and would be the third attempt to sell itself since 2006.


Sources familiar with the matter told several publications late Wednesday that Exelon was in late-stage talks to buy Constellation. The deal would be a stock-for-stock transaction, The Wall Street Journal and The New York Times both reported.

Constellation shares closed at $34.30 Wednesday, giving the company a market value of just under $6.9 billion.

Citing sources with knowledge of the matter, news outlets said late Wednesday that Exelon's offer valued Constellation at about $7.7 billion, which is more than $38.50 a share.

Exelon's market value at the end of trading Wednesday was nearly $27.5 billion.

The sources emphasized that the deal was not final and could fall apart.

Constellation spokesman Larry McDonnell declined to comment Wednesday evening. Constellation board member James T. Brady also did not offer a comment.

Constellation is the largest publicly traded company in the Baltimore region, employing 7,600 workers and contributing significantly to the city's tax base. It also gives

millions of dollars a yea


in donations to city and state charities. Constellation's regulated utility, Baltimore Gas & Electric Co., serves 1.2 million electric customers in Central Maryland.

Towson-based Black & Decker, which was on the Fortune 500 list, merged in 2009 with The Stanley Works, whose headquarters are in Connecticut. The local brokerage firm Legg Mason barely made the list of the nation's 500 largest companies in 2009 — ranked number 500 — but fell off the list last year.

Civic leaders have long lamented the departure of corporate citizens from the city because of the jobs, tax revenue and philanthropic donations they take with them.

"The one thing you don't want to lose is local control over your power company," said Baltimore City Councilman William H. Cole IV, whose district includes downtown. "[Constellation is] enormous. They are major landowners, they pay massive amounts of property and other taxes. And they have a very healthy foundation. They're very generous. They're a huge player and a big employer."

Rick Abbruzzese, a spokesman for Gov. Martin O'Malley, said Wednesday night that it would be premature to comment because the reports of a merger were preliminary.


The Public Service Commission, which regulates power utilities in Maryland, must approve any merger involving Constellation.

The potential union with Exelon would be the third large-scale transaction that Constellation has pursued since 2006 under Chairman and CEO Mayo A. Shattuck III.

After transforming itself from a small utility to the largest energy marketer in the United States, Constellation reached a low point in late 2008 amid the financial sector meltdown. Facing a credit crisis, Constellation agreed to a shotgun deal to sell itself to Warren Buffett's MidAmerican Energy for $4.7 billion.

But in an about-face, Constellation terminated that agreement to remain an independent company in Baltimore by selling nearly half its nuclear power business to its then-largest shareholder, French utility EDF Group, for nearly the same price as the earlier deal with Buffett.

In 2006, a merger with Florida Power & Light fell through amid political and regulatory pressure and growing rancor over increasing rates.

In the past two years, Constellation has shored up its finances, shed shaky businesses and reduced its debt. In 2009, the company reported a $4.4 billion profit. Last year, the company had a $982.6 million net loss, largely attributed to costs related to its nuclear power business.

In recent months, rumors circulated in trade publications that Exelon and Constellation were looking to consummate a merger.

Exelon would gain Constellation's growing gas and electric supply business, which sells power to wholesale, commercial and industrial customers across the country. Constellation has said its NewEnergy unit could account for up to 45 percent of the company's earnings this year.

In addition, Exelon would gain a stake in Constellation's existing nuclear plants in Southern Maryland and New York through a merger. EDF Group owns nearly half of Constellation's nuclear power business.

Exelon already has a small presence in Maryland, as the operator of the hydroelectric power plant at the Conowingo Dam on the Susquehanna River.

Several past buyout attempts of other power companies under Exelon CEO John Rowe have been unsuccessful and have riled


In 2009, Rowe attempted a hostile takeover of the New Jersey-based utility NRG Energy Inc. but abandoned that move after losing a shareholder vote. The failed takeover followed previous unsuccessful runs at Illinois Power Co. and Public Service Enterprise Group Inc.

In an investor conference call Wednesday, Rowe did not directly address the company's merger prospects.

"I keep saying that consolidation makes sense in this industry, that it's essential in this industry. We always look, and we're as cold-blooded as it can be when it comes down to the economics. We won't overpay for a deal, and we won't enter transactions that give away all of our upside to a power market recovery," Rowe said.

Questioned about the reports of a merger with Constellation, Christopher Crane, president and chief operating officer for Exelon, offered no answer.

"This lady is not for commenting on rumors," he said.

Baltimore Sun writer Jean Marbella and Chicago Tribune staff writer Julie Wernau contributed to this article.