Constellation Initiates Short Circuit Of Merger Talks

Constellation Energy Group initiated the calling off of its $11 billion merger with FPL Group, according to FPL spokeswoman Mary Lou Kromer. Since the decision to terminate was mutual, she says, neither will be required to pay a break-up fee.

Constellation Energy Group initiated the calling off of its $11 billion merger with FPL Group, according to FPL spokeswoman Mary Lou Kromer. Since the decision to terminate was mutual, she says, neither will be required to pay a break-up fee. Constellation had agreed to pay $650 million if it halted talks; FPL, $425 million.

On the face of it, the FPL/Constellation deal seemed less likely to face political opposition than the $17 billion PSEG/Exelon deal, notes Patrick Donoghue, senior managing director in mergers and acquisitions transactions services at FTI Consulting in New York. “FPL and Constellation do not have the same overlapping service territories and market power issues. It is a smaller deal and they have offered significant concessions,” he notes.

But the timing of the merger talks, given the recent collapse of Public Service Enterprise Group and Exelon‘s union, proved unserendipitous for FPL/Constellation’s combination. Observers suggest Maryland regulators were concerned Constellation’s assets would be used to bolster FPL’s more leveraged balance sheet, leading to further electricity rate hikes at Baltimore Gas & Electric.

All five members of the Maryland Public Service Commission charged with approving the deal were recently fired from the case, but won a motion alleging their dismissal was unlawful and were allowed to stay on. “It then begged the question as to who at the commission could make the ultimate decision, which created a dilemma for [FPL and Constellation],” explains Maryland commission spokeswoman Bethany Gill.

Merger-related expenses reported by Constellation amounted to $9 million at the half year point, while FPL’s were $11 million.