Here's hoping Shattuck sees the light, doesn't sell

December 15, 2005|By JAY HANCOCK

I have always hoped, for Baltimore's sake, that Constellation Energy CEO Mayo Shattuck saw himself as more than a deal maker.

I hoped the former investment banker relished the challenge of showing he could operate a real industrial corporation, with dynamos and reactors and wires, over many years. I hoped he would build Constellation into a global energy giant, as he has shown every sign of doing.

I hoped, when Shattuck became Constellation's boss four years ago, that he wouldn't just fix the company, shop it around to his Wall Street buddies and flip it at the first lucrative opportunity.

The parent of Baltimore Gas and Electric is in talks about some sort of merger or acquisition deal with FPL Group of Juno Beach, Fla., a place that was swampland long after BGE illuminated America's first gaslights.

FPL, operator of Florida Power & Light, is the larger company and the logical acquirer, though a deal isn't done. A lot can happen between now and the merger news conference, including a collapse of the talks. Information is scarce and inevitably anonymous, so even if a merger agreement is struck, the impact might not end up as bad as we fear.

Or is this just wishful thinking?

Certainly Shattuck, who was once No. 2 at Baltimore investment bank Alex. Brown, and the rest of Constellation's top management have given the impression that they're here for the long haul.

Constellation does not look like a takeover candidate. After stumbling around for years, the Baltimore power seller has assembled a smart strategy, a good management team, a decent stock price and plenty of potential. The company has become expert at power trading and hedging, held onto its stable, regulated businesses and assembled a fleet of nuclear plants that can undercut gas and coal generators with cheap juice.

You want takeover bait?

Consider previous Baltimore corporate acquirees such as Allfirst Financial, which was winged by a 2002 currency scandal and made vulnerable to a pickoff by M&T Bank Corp. Or USF&G, bought by St. Paul Cos. Or Maryland National Bank, now part of Bank of America. Wounded ducks all, destined for swallowing.

(Yes, I know that Alex. Brown was hearty and profitable when Shattuck helped sell it to Bankers Trust. That was an exception - I hope.)

Constellation's comparative vigor and unfulfilled promise suggest that it can reject FPL. More importantly, those attributes imply that some on Constellation's board might want to reject FPL, forgo an easy $5 or $10 bump in the stock and try to build greater value over the long term on their own.

We can assume that the anonymous sources for The New York Times, which first reported the talks, are investment bankers or Wall Street lawyers eager to pocket commissions and trying to bully Constellation into a deal.

Constellation's stock rose nearly $5 yesterday on the news. If talks fall apart, the stock will fall, and shareholders will lose money on paper, a certainty that increases the pressure on Constellation bosses to sign on the line.

But Constellation has no need to buckle. Its stock performance has been almost identical with that of FPL over the past five years.

Weird weather caused a less-than-perfect third quarter for Constellation, but even before the talks were disclosed, the stock was within $6 of its all-time high.

Shattuck, of all people, has the smarts and the guts to play poker with these guys and walk away from the table, saying "No thanks" to the energy-merger fad, if that's what he wants.

And maybe, just maybe, if a deal emerges, it would work to Baltimore's and Constellation's advantage.

As Legg Mason's recent asset swap with Citigroup shows, the fact that investment bankers are taking the Amtrak Acela to Penn Station isn't necessarily bad news for Baltimore. Legg gave up its brokerage unit, but it got Citi's asset management wing to become the world's fifth-biggest money manager.

FPL and Constellation will spin any deal as good for Baltimore, no matter what. But there will be clues to watch for. Any agreement that makes Shattuck non-executive chairman and gives the CEO seat to FPL boss Lew Hay is probably not a good thing.

Any deal that gives FPL board members a majority of director seats in a merged outfit, ditto. Any deal that triggers munificent "change in control" payoffs for Shattuck and other Constellation bosses, ditto.

Shattuck has no need to strike a deal of any kind, let alone a bad one. Here's hoping, for a little longer anyway, that he doesn't.

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