Exelon, PSEG say merger still on track

June 20, 2006

BY MARY WISNIEWSKI Business Reporter





Though the regulatory process is taking longer than expected, Exelon and New Jersey-based Public Service Enterprise Group will continue trying for approval of their proposed merger after a break-up fee expires today.

"We are moving ahead to get our last two remaining regulatory approvals," said John Rowe, CEO of Chicago-based Exelon, the parent company of Commonwealth Edison. Rowe said the companies continue to make progress in discussions with the U.S. Department of Justice, and are still in settlement talks with the New Jersey Board of Public Utilities.

"We are trying to successfully complete these discussions as soon as possible," Rowe said.

Exelon and PSEG announced the proposed merger -- which would create the nation's largest utility -- in December 2004. At the time, the companies believed the regulatory process could take 12 to 15 months. The deal has faced criticism in New Jersey from consumer advocates who believe it will raise home electricity costs.

If either side had pulled out of the merger before today, it would have had to pay a $400 million break-up fee. Exelon or PSEG now can walk away from the proposed deal without penalty.

Exelon shareholders have also criticized the merger, saying the company's rising market value has made an all-stock acquisition of Public Service too expensive. The acquisition was valued at about $12 billion in late 2004 -- and is now valued at $17 billion. Duquesne Capital Management, a New York hedge fund, called the transaction a windfall to Public Service shareholders.

In a statement, Rowe said that higher energy prices have raised the values of Exelon and PSEG "about proportionately" since the merger was announced.

"The strategic value of the merger remains compelling," Rowe said.

Rowe admitted that the company's settlement proposals with New Jersey "make the economics of the transaction somewhat thinner." But both boards recently reviewed the transaction, and agreed that it should proceed on the assumption that reasonable settlements can be reached at DOJ and New Jersey, according to a joint Exelon-PSEG statement.

Paul B. Fremont, an energy analyst at Jefferies & Co., said he wasn't surprised that the merger is taking so long to close. "Whenever politicians get involved, there's an element of unpredictability," Fremont said.

Daniele M. Seitz, managing director at Dahlman, Rose & Co., noted that it's tough to know what exactly is going on before the DOJ and in New Jersey discussions, and "shareholders don't like mystery." She noted that the Federal Energy Regulatory Commission has already approved the merger.

The merger is under review by a New Jersey Board of Public Utilities administrative law judge, who could decide by June 25. That decision is then sent to the board, which has 45 days to accept, reject or modify it. The judge and the board could ask for more time.

Exelon and PSEG expect the merger to close in the third quarter, upon completion of all required regulatory actions. If the acquisition is approved, the combined companies would have 7 million electric customers and 2 million gas customers in Illinois, New Jersey and Pennsylvania.

Contributing: Bloomberg News

mwisniewski@suntimes.com





So much for competition if they own it all.