Exelon Corporation (NYSE: EXC) and Pepco Holdings Inc. (NYSE: POM) today
announced that they have signed a definitive agreement to combine the
two companies in an all-cash transaction. 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.
Exelon President and CEO Chris Crane said, “Exelon and Pepco Holdings
have a compelling strategic rationale for merging, given our geographic
proximity and similar utility business models. Our cultures are an
excellent match, with a shared focus on operational excellence,
environmental stewardship, customer service and support for the
communities we serve.”
Pepco Holdings Chairman, President and CEO Joseph M. Rigby, said, “This
combination provides significant benefits for all of our stakeholders,
including customers, employees and shareholders. Exelon is one of the
most respected energy companies in the country, and it is committed to
building on the progress our team has made over the last few years to
improve system reliability and customer satisfaction. As part of this
transaction, Exelon has committed to provide what our customers most
want: investments in infrastructure improvements, continuation of our
long tradition of philanthropy in our communities and direct customer
benefits of $100 million. Our shareholders will benefit from an
immediate cash premium, and employees should enjoy even more
opportunities as part of a larger company.”
Rigby added that being part of a family of large urban utilities with
distinguished emergency response capabilities will be of enormous value
to the Pepco Holdings utilities and their customers during major storms.
Commitment for Increased Reliability
As part of the acquisition, Exelon and Pepco Holdings have committed to
build on the significant improvements to service reliability that Pepco
Holdings has already achieved for Atlantic City Electric, Delmarva Power
and Pepco customers.
This commitment is backed by the strong reliability performance of the
current Exelon utilities. ComEd and PECO are delivering first-quartile
performance, and BGE’s reliability metrics have risen to their best-ever
levels since BGE joined Exelon in 2012 and are just shy of first
quartile.
Other Benefits to Electric and Gas Customers
In addition to reliability improvements, upon completion of the
transaction, Exelon will provide an aggregate $100 million – equivalent
to approximately $50 per customer – for a Customer Investment Fund to be
utilized across the Pepco Holdings utilities’ service territories as
each state public service commission deems appropriate for customer
benefits, such as rate credits, assistance for low income customers and
energy efficiency measures.
Exelon has also pledged to maintain charitable contributions in the
Pepco Holdings service territories at Pepco Holdings’ highest-ever level
for at least a decade, a total commitment of $50 million.
Terms of the Transaction
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.
Financing
The transaction is supported by a fully committed $7.2 billion bridge
facility with Barclays and Goldman Sachs. Exelon expects the permanent
financing plan to include a combination of Exelon equity issuance,
long-term debt and corporate cash. The timing of the permanent financing
is subject to a number of factors, including but not limited to market
conditions.
Leadership and Headquarters
Crane will remain president and CEO of the combined company. 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.
Approvals and Timing
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.
Advisors
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.
Conference Call & Webcast
Crane and Rigby will discuss the transaction on a one-hour conference
call with the financial community during the timeframe for Exelon’s
scheduled earnings call: 11 a.m. EDT (10 a.m. CDT) Wednesday, April 30.
The call-in number in the U.S. and Canada is 800-690-3108, and the
international call-in number is 973-935-8753. If requested, the
conference ID number is 14743663. Media representatives are invited to
participate on a listen-only basis. The call will be webcast and
archived on Exelon’s and Pepco’s websites: www.exeloncorp.com
and www.pepcoholdings.com
(select the Investors page of either site).
Telephone replays will be available starting two hours after the call
ends and until May 14, 2014. The U.S. and Canada number for replays is
800-585-8367, and the international number is 404-537-3406. The
conference ID number is 14743663.
A live audio webcast on the Investor Relations page of Exelon’s website (www.exeloncorp.com)
will also be available. It will be archived and available for replay two
hours after the conference call ends.
About Exelon Corporation
Exelon Corporation (NYSE: EXC) is the nation’s leading competitive
energy provider, with 2013 revenues of approximately $24.9 billion.
Headquartered in Chicago, Exelon has operations and business activities
in 47 states, the District of Columbia and Canada. Exelon is one of the
largest competitive U.S. power generators, with more than 35,000
megawatts of owned capacity comprising one of the nation’s cleanest and
lowest-cost power generation fleets. The company’s Constellation
business unit provides energy products and services to approximately
100,000 business and public sector customers and approximately 1 million
residential customers. Exelon’s utilities deliver electricity and
natural gas to more than 6.6 million customers in central Maryland
(BGE), northern Illinois (ComEd) and southeastern Pennsylvania (PECO).
Follow Exelon on Twitter @Exelon.
About Pepco Holdings Inc.
Pepco Holdings Inc. is one of the largest energy delivery companies in
the Mid-Atlantic region, serving about 2 million customers in Delaware,
the District of Columbia, Maryland and New Jersey. PHI subsidiaries
Pepco, Delmarva Power and Atlantic City Electric provide regulated
electricity service; Delmarva Power also provides natural gas service.
PHI also provides energy efficiency and renewable energy services
through Pepco Energy Services. For more information, visit online: www.pepcoholdings.com.
Cautionary Statements Regarding Forward-Looking Information
Except for the historical information contained herein, certain of the
matters discussed in this communication constitute “forward-looking
statements” within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934, both as amended by the Private
Securities Litigation Reform Act of 1995. Words such as “may,” “might,”
“will,” “should,” “could,” “anticipate,” “estimate,” “expect,”
“predict,” “project,” “future”, “potential,” “intend,” “seek to,”
“plan,” “assume,” “believe,” “target,” “forecast,” “goal,” “objective,”
“continue” or the negative of such terms or other variations thereof and
words and terms of similar substance used in connection with any
discussion of future plans, actions, or events identify forward-looking
statements. These forward-looking statements include, but are not
limited to, statements regarding benefits of the proposed merger,
integration plans and expected synergies, the expected timing of
completion of the transaction, anticipated future financial and
operating performance and results, including estimates for growth. These
statements are based on the current expectations of management of Exelon
Corporation (Exelon) and Pepco Holdings, Inc. (PHI), as applicable.
There are a number of risks and uncertainties that could cause actual
results to differ materially from the forward-looking statements
included in this communication. For example, (1) PHI may be unable to
obtain shareholder approval required for the merger; (2) the companies
may be unable to obtain regulatory approvals required for the merger, or
required regulatory approvals may delay the merger or cause the
companies to abandon the merger; (3) conditions to the closing of the
merger may not be satisfied; (4) an unsolicited offer of another company
to acquire assets or capital stock of Exelon or PHI could interfere with
the merger; (5) problems may arise in successfully integrating the
businesses of the companies, which may result in the combined company
not operating as effectively and efficiently as expected; (6) the
combined company may be unable to achieve cost-cutting synergies or it
may take longer than expected to achieve those synergies; (7) the merger
may involve unexpected costs, unexpected liabilities or unexpected
delays, or the effects of purchase accounting may be different from the
companies’ expectations; (8) the credit ratings of the combined company
or its subsidiaries may be different from what the companies expect;
(9) the businesses of the companies may suffer as a result of
uncertainty surrounding the merger; (10) the companies may not realize
the values expected to be obtained for properties expected or required
to be sold; (11) the industry may be subject to future regulatory or
legislative actions that could adversely affect the companies; and
(12) the companies may be adversely affected by other economic,
business, and/or competitive factors. Other unknown or unpredictable
factors could also have material adverse effects on future results,
performance or achievements of the combined company. Therefore,
forward-looking statements are not guarantees or assurances of future
performance, and actual results could differ materially from those
indicated by the forward-looking statements. Discussions of some of
these other important factors and assumptions are contained in Exelon’s
and PHI’s respective filings with the Securities and Exchange Commission
(SEC), and available at the SEC’s website at www.sec.gov,
including: (1) Exelon’s 2013 Annual Report on Form 10-K in (a) ITEM 1A.
Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations and (c) ITEM 8. Financial
Statements and Supplementary Data: Note 22; and (2) PHI’s 2013 Annual
Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations and (c) ITEM 8. Financial Statements and Supplementary
Data: Note 15. These risks as well as other risks associated with the
proposed merger will be more fully discussed in the proxy statement that
PHI intends to file with the SEC and mail to its stockholders in
connection with the proposed merger. In light of these risks,
uncertainties, assumptions and factors, the forward-looking events
discussed in this communication may not occur. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak
only as of the date of this communication. Neither Exelon nor PHI
undertakes any obligation to publicly release any revision to its
forward-looking statements to reflect events or circumstances after the
date of this communication. New factors emerge from time to time, and it
is not possible for Exelon or PHI to predict all such factors.
Furthermore, it may not be possible to assess the impact of any such
factor on Exelon’s or PHI’s respective businesses or the extent to which
any factor, or combination of factors, may cause results to differ
materially from those contained in any forward-looking statement. Any
specific factors that may be provided should not be construed as
exhaustive.
Additional Information and Where to Find It
This communication does not constitute a solicitation of any vote or
approval. PHI intends to file with the SEC and mail to its stockholders
a proxy statement in connection with the proposed merger transaction.
PHI URGES INVESTORS AND SECURITY HOLDERS TO READ THE PROXY STATEMENT AND
ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION about Exelon, PHI and the proposed
merger. Investors and security holders will be able to obtain these
materials (when they are available) and other documents filed with the
SEC free of charge at the SEC’s website, www.sec.gov.
In addition, a copy of PHI’s proxy statement (when it becomes available)
may be obtained free of charge from Pepco Holdings, Inc., Corporate
Secretary, 701 Ninth Street, N.W., Room 1300, Washington, D.C. 20068.
Investors and security holders may also read and copy any reports,
statements and other information filed by Exelon or PHI with the SEC, at
the SEC public reference room at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC’s website
for further information on its public reference room.
Participants in the Merger Solicitation
Exelon, PHI, and their respective directors, executive officers and
certain other members of management and employees may be deemed to be
participants in the solicitation of proxies in respect of the proposed
transaction. Information regarding Exelon’s directors and executive
officers is available in its proxy statement filed with the SEC on April
2, 2014, in connection with its 2014 annual meeting of stockholders, and
information regarding PHI’s directors and executive officers is
available in its proxy statement filed with the SEC on March 25, 2014,
in connection with its 2014 annual meeting of stockholders. Other
information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings
or otherwise, will be contained in the proxy statement and other
relevant materials to be filed with the SEC when they become available.
Copyright Business Wire 2014