Utility merger might be near

BGE parent, Fla. firm would lead to 3rd-biggest U.S. energy company

December 15, 2005|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

Shares of Constellation Energy Group jumped 8.6 percent yesterday on news that the Baltimore-based company might combine with a Florida utility operator in an $11-billion-plus deal, a prospect that left business and civic leaders to speculate about the future of one of the region's few remaining Fortune 500 companies.

A merger between Juno Beach, Fla.-based FPL Group Inc., the parent of Florida Power & Light, and Constellation would create the third-largest energy company in the nation and serve much of the Atlantic seaboard.

The deal also would pair companies committed to building the nation's first nuclear power plants in a generation and continue an industry consolidation trend that has spawned more than $430 billion worth of energy company mergers worldwide in the past year.

Shares of Constellation, the parent of Baltimore Gas and Electric Co., climbed $4.83 to close at $61.10 in trading yesterday on the New York Stock Exchange. FPL shares rose 13 cents to close at $43.

Sources said yesterday that the two sides were in negotiations to combine the companies, which together would have revenue of more than $23 billion annually and operations in about two dozen states along the East Coast and as far west as California.

Neither company would comment yesterday on the rumors. FPL spokesman Bill Swank said any acquisition candidate would have to be a good strategic fit.

"We would be looking for a company similar to ourselves," he said.

Price could rise

If a deal is made in coming days, industry analysts and other sources familiar with the two companies said, the price could climb much higher, but it remains unclear whether it would be a so-called merger of equals or an acquisition by one company of the other.

The outcome of the talks will determine where the jobs land and whether Baltimore remains a headquarters city for one of the nation's most profitable and fastest-growing marketers of electricity. Most analysts see Constellation remaining a large presence in Maryland, where it has 6,461 employees, regardless of how the deal is structured.

"In this kind of acquisition, it doesn't make a lot of sense to eliminate a lot of positions," said David E. Parker, an analyst with Robert W. Baird in Tampa, Fla., who doesn't own shares of either company. "You're really looking to try to expand the business."

Analysts differ on whether the combined company would be run from FPL's headquarters in South Florida, from Baltimore or some combination of the two.

Baltimore is more convenient to some of the big energy markets where Constellation and FPL are looking to expand. As the nation's biggest marketer of power in deregulated markets, Constellation also offers an established marketing and trading operation in downtown Baltimore.

Both companies are looking to expand nationally through their merchant energy businesses, which focus on buying profitable generating assets and selling energy to large customers.

"Unless they're tired of hurricanes, I don't think FPL is going to leave Florida," said Gordon Howald, a utility analyst with Natexis Bleichroeder in New York who does not own shares in the company. "That doesn't mean that management in Baltimore is going to go anywhere."

Under Chief Executive Officer Mayo A. Shattuck III, Constellation has become the nation's largest marketer of power by securing long-term supply contracts with municipalities such as Boston and large corporations such as General Electric Co.

Watching anxiously

Political and business leaders are watching the situation anxiously. Constellation and Shattuck are involved with numerous civic and philanthropic boards, and are major advocates for local economic development initiatives.

"You certainly would like to have them maintain their presence and the fact that this would be their home base," said Donald C. Fry, president of the Greater Baltimore Committee. BGE was one of the business advocacy group's founding companies when it was established 50 years ago.

"But in this day and age," Fry said, "the reality is that this type of discussion goes on in cities all over the globe because there are constant changes in ownership and management of companies."

A spokeswoman for Gov. Robert L. Ehrlich Jr. said the governor learned of the negotiations involving Constellation yesterday and is monitoring the situation.

Analysts speculated that much of the operations of both companies would probably remain where they are.

That is particularly probable, some experts said, for the employees and assets of BGE, which is a virtually autonomous business unit with its own employees and back-office operations.

Much of Constellation's nuclear operations, including management and oversight of its Calvert Cliffs nuclear plant, are in Annapolis, where they would probably remain.

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