Exelon Corporation (NYSE:EXC) entered a definitive agreement to combine its three top performing electric and gas utilities—BGE, ComEd and PECO with the electric and gas utilities Pepco Holdings, Inc. (NYSE:POM) including Atlantic City Electric, Delmarva Power and Pepco. The merger will create a huge Mid-Atlantic electric and gas utility.

Exelon Corporation

Exelon – Pepco: Terms of the transaction

Exelon Corporation (NYSE:EXC) will purchase Pepco Holdings, Inc. (NYSE:PM) for $27.25 per share in an all-cash transaction. The acquisition price represents a 24.7% premium to the $21.85 per share closing price of Pepco on April 25, and 29.5% premium to its volume-weighted average share price over the last 20 trading days.

Under the agreement, Exelon Corporation (NYSE:EXC) and Pepco Holdings, Inc. (NYSE:POM) made a commitment to build on the significant improvements to service reliability, which was already achieved by Pepco for Atlantic City Electric, Delmarva Power and Pepco customers. The commitment is supported by the strong reliability performance of the existing Exelon utilities.

Following the completion of the transaction, Exelon Corporation (NYSE:EXC) will provide a total of $100 million-equivalent to approximately $50 per customer for a Customer Investment Fund that will be used across the Pepco Holdings utilities’ service territories for customers benefits such as rate credits, assistance for low-income customers, energy efficiency measures.

In addition, Exelon Corporation (NYSE:EXC) also agreed to continue the charitable contributions in the service territories of Pepco Holdings, Inc. (NYSE:POM) for at least a decade with a total commitment of $50 million.

Compelling strategic rationale

In a statement, Chris Crane, president and CEO of Exelon Corporation (NYSE:EXC) emphasized that both companies have a “compelling strategic rationale” for combining their electric and gas utilities services given their geographic proximity and similar business models. Crane added, “Our cultures are an excellent match, with a shared focus on operational excellence, environmental stewardship, customer service and support for communities we serve.”

On the other hand, Joseph M. Rigby, chairman, president and CEO of Pepco Holdings, Inc. (NYSE:POM) said the merger provides significant benefits for customers, employees, and shareholders. According to him, the company’s shareholders will “benefit from an immediate cash premium, and employees should enjoy even more opportunities as part of a larger company.”

The combined utility businesses of Exelon Corporation (NYSE:EXC) and Pepco Holdings, Inc. (NYSE:POM) will serve around 10 million customers and it will have a rate base of approximately $26 billion.

Leadership

Crane will serve as president and CEO of the combined company. Rigby previously announced his retirement. He will continue to lead Pepco Holdings until the closing of the deal, which is expected in the second or third quarter of 2015.

The board of directors of both companies unanimously approved the transaction, but it still needs the approval of the shareholders of Pepco Holdings, Inc. (NYSE:POM). The completion of the transaction also requires regulatory approvals, and it is also subject to notification and reporting requirements under the Hart-Scott-Rodino Act and other customary closing conditions.