Exelon Denial Signals Battles Over $40 Billion in Utility Deals
The rejection of Exelon Corp.’s $6.8 billion takeover of Pepco Holdings Inc. proved a warning for an industry trying to gain approval for $40 billion worth of deals: Be ready for an uphill battle with local regulators.
The District of Columbia’s move to block the merger on Tuesday throws in doubt Exelon’s goal of creating the biggest U.S. utility in terms of customers. Power giants NextEra Energy Inc. and Iberdrola SA are also facing opposition in proposed takeovers in Hawaii and Connecticut. Southern Co. will have to persuade regulators in five states to approve its $8 billion purchase of AGL Resources Inc., announced on Monday.
“There is a graveyard filled with corpses of failed utility mergers doomed by state regulators,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC. The rejection of Exelon’s bid “should serve as a reminder that state regulatory approvals are not to be taken for granted.”
Utilities are moving to consolidate to cope with tepid sales and rising costs. In the past two years, however, at least three utility deals have been delayed or terminated. Those include the sale of Entergy Corp. transmission lines to ITC Holdings Corp. after rejection by Mississippi regulators and UIL Holdings Corp.’s agreement to buy Philadelphia Gas Works after the city council refused to consider it.
