No wonder Constellation Energy CEO Mayo Shattuck wanted to merge two years ago with FPL Group of Florida.
Just as Merrill Lynch sought solace in the arms of Bank of America over the weekend, just as Lehman Brothers looked in vain for a stable partner, Shattuck knew even back then he might need to tether his own indebted financial empire to something solid.
As this week's sobering events have proven, companies relying on market bets for big pieces of their profits are iffy long-term prospects. Hence Constellation's dance with FPL and its large Florida Power & Light utility, which Shattuck admitted in 2006 would "provide steady cash generation and financial ballast needed to satisfy the credit rating agencies and Wall Street."
Constellation never found a partner, and what Shattuck apparently feared has come to pass. The credit agencies are closing in. He's looking at another match - only under duress instead of at leisure.
The Wall Street Journal reported late yesterday that Electricite de France, a state-owned French company that already owns 9.5 percent of Constellation, is contemplating buying another chunk or maybe the whole concern. It would certainly make sense for FPL to take another look, too. As fast as this is happening, they may be the only parties that know Constellation well enough to do a quick deal.
No matter whom Constellation pairs up with, the same worries that prompted the General Assembly to resist and ultimately kill an FPL merger two years ago are still a concern. It's important for Constellation to find the "strategic partner" it needs to benefit shareholders, lenders and employees.
Just don't let customers of Constellation's Baltimore Gas & Electric utility get lost in the shuffle. They've already suffered enough from deregulation and freewheeling markets.
Few people realize it, but Constellation has more in common with Wall Street outfits like Merrill Lynch than with the boring, predictable utilities whose dividends used to furnish your grandmother's bingo money.
Enormous portions of its profits have come from borrowing at low, short-term rates and taking big positions in commodities markets. Favorite bets have included coal, natural gas and wholesale electricity, all of which soared in the year's first half and helped pile up profits.
