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Wednesday, August 30, 2006

Exelon/PSEG: A "mother of all cratered deals" update 


Regular readers know that I occasionally declaim on things that amuse me in the business world, at least if they are at long remove from my industry. In that spirit, I have previously speculated that the long-pending merger between Exelon and New Jersey's Public Service Enteprise Group was in a lot of trouble. The New Jersey Board of Public Utilities has held up its approval of the deal in the hopes of securing a bigger basket of goodies for "the people of New Jersey," or at least specific people in New Jersey. The deal has now been hanging fire since December 2004, and in early August Exelon and PSEG served the BPU with an ultimatum. The BPU called the bluff, and Exelon and PSEG groveled for more time to sweeten the pot. All that is history is here, and, yes, I actually did write that the BPU has made Exelon's CEO "its bitch." Sorry, but we are talking about New Jersey public utility regulation.

Well, a month on it now looks as though the deal really is in serious trouble. Exelon has decided that it can no longer say that the deal is more likely to close than not, and accordingly has taken a massive charge to write off the transaction expenses that would have been capitalized (expensed over a period of many years) had it completed the deal. In doing this, Exelon's management is revealing that it is, frankly, tired. It says it will continue to labor on, but this charge is a more credible signal than the bluff in early August that the BPU had better hit the current bid or the deal will die.

I have no idea, by the way, whether the sale of PSEG "should" die from the perspective of New Jersey's "ratepayers". However, I have done enough acquisitions to know two things.

First, PSEG's management must be despondent. They have undoubtedly been running the company for more than a year around the assumption that it will be sold. It simply must be true that hundreds if not thousands of staff employees have left anticipating the loss of their jobs, or have been working as though they will soon lose their jobs (which is almost worse). The top team, which has been hanging on desperate for their severance packages, now will have to get back to the boring business of running an electric utility, and they will have to do it with a hollowed out and probably demoralized corporate staff.

Second, nobody else is going to try to buy Public Service Enteprise Group any time soon. As I wrote almost a month ago, who will buy PSEG knowing the BPU is going to demand more than $1.5 billion? Nobody. Which is why the price of a share of PSEG is down more than 4% this morning.

The only hope now is that some of those specific New Jersey people decide that half a loaf is better than none. Stay tuned.


1 Comments:

By Anonymous Thomas, at Wed Aug 30, 03:40:00 PM:

I thought NJ was going to be run like a business under Corzine! Atleast thats what the former Florio staffer-now PAC member for Meadowlands Chamber of Commerce told me a while ago. I guess they were wrong. I love this state!  

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