Merger and Acquisitions (Exelon, Generation, ComEd, PECO and BGE)

6 Months Ended

Jun. 30, 2014

Business Acquisition [Line Items]

Mergers and Acquisitions (Exelon, Generation, ComEd, PECO and BGE)

4.Mergers, Acquisitions and Dispositions

Proposed Merger with Pepco Holdings, Inc. (Exelon)

Description of Transaction

On April 29, 2014, Exelon and Pepco Holdings, Inc. (PHI) signed an agreement and plan of merger (as subsequently amended and restated as of July 18, 2014, the Merger Agreement) to combine the two companies in an all cash transaction.  The resulting company will retain the Exelon name and be headquartered in Chicago.  Under the Merger Agreement, PHI's shareholders will receive $27.25 of cash in exchange for each share of PHI common stock. In connection with the Merger Agreement, Exelon entered into a subscription agreement under which it purchased$90 million of a new class of nonvoting, nonconvertible and nontransferable preferred securities of PHI,in the second quarter of 2014, with additional investments of $18 million to be made quarterly up to a maximum aggregate investment of $180 million. PHI has the right to redeem the preferred securities at its option for the purchase price paid plus accrued dividends, if any. The $90 million of PHI preferred securities are included in Other non-current assets on Exelon's Consolidated Balance Sheet as of June 30, 2014. Exelon expects total cash required to fund the acquisition of common stock and preferred securities plus other related acquisition costs to total approximately $7.2 billion.

The transaction must be approved by the shareholders of PHI. Completion of the transaction is also conditioned upon approval by the FERC, the District of Columbia Public Service Commission and several state commissions including Delaware Public Service Commission, MDPSC, the New Jersey Board of Public Utilities and the Virginia Department of Public Utilities. In addition, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), the transaction cannot be completed until Exelon has made required notifications and given certain information and materials to the Federal Trade Commission (FTC) and/or the Antitrust Division of the United States Department of Justice (DOJ) and until specified waiting period requirements have expired. 

Exelon has been named in suits filed in the Delaware Chancery Court alleging that individual directors of PHI breached their fiduciary duties by entering into the proposed merger transaction and Exelon aided and abetted the individual directors' breaches. The suits seek to enjoin PHI from completing the merger or seek rescission of the merger if completed. In addition, they also seek unspecified damages and costs. Exelon intends to vigorously defend these suits. Exelon does not believe these suits will impact the completion of the transaction, and they are not expected to have a material impact on Exelon's results of operations.

Through June 30, 2014, Exelon has incurred approximately $25 million of expense associated with the transaction, primarily related to fees incurred as part of the acquisition. As part of the applications for approval of the merger, Exelon and PHI have proposed a package of benefits to PHI utilities' customers which results in a direct investment of more than $100 million.  The Merger Agreement also provides for termination rights on behalf of both parties.  Under certain circumstances, if the Merger Agreement is terminated, PHI may be required to pay Exelon a termination fee ranging from $259 million to $293 million plus certain expenses.  If the Merger Agreement does not close due to a regulatory failure, Exelon may be required to pay PHI a termination fee equal to the amount of purchased nonvoting preferred securities (described above), by means of PHI redeeming the outstanding nonvoting preferred securities for no consideration other than the nominal par value of the stock. The companies anticipate closing the transaction in the second or third quarter of 2015, subject to receipt of required regulatory approvals. 

Merger Financing

Exelon intends to fund the all-cash transaction using a combination of approximately $3.5 billion of debt, up to $1.0 billion cash from asset sales primarily at Generation, and the remainder through issuance of equity (including mandatory convertible securities). On June 11, 2014, Exelon marketed an equity offering of 57.5 million shares of its common stock at a public offering price of $35 per share in connection with forward sales agreements and $1.2 billion of junior subordinated notes in the form of 23 million equity units.  In addition, Exelon signed a 364-day $7.2 billion senior unsecured bridge credit facility to support the contemplated transaction and provide flexibility for timing of permanent financing, which has subsequently been reduced to $4.2 billion as a result of theequity issuances. See Note10—Debt and Credit Agreements and Note 16—Common Stock for more information.

Safe Harbor Water Power Corporation (Exelon and Generation)

On May 15, 2014, Generation entered into a Purchase and Sale Agreement with Brookfield Renewable Energy Partners L.P. to sell Generation's 67% economic equity interest in the 417 MW Safe Harbor Water Power Corporation hydroelectric facility on the Susquehanna River in Pennsylvania (Safe Harbor). The total purchase price for the transaction is approximately $613 million. The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to be completed in the third quarter of 2014, at which time Generation anticipates recording a pre-tax gain of approximately $332 million. The after-tax net cash proceeds of $375 million are expected to be used to finance a portion of the acquisition of PHI and for general corporate purposes.