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EXELON SAYS PUBLIC SERVICE DEAL IN PERIL
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| By Michael Erman
Wed Aug 30, 12:44 PM ET
NEW YORK (Reuters) - Exelon Corp. on Wednesday cast doubt
on its ability to complete a planned $18.5 billion takeover of
Public Service Enterprise Group Inc. due to difficulty
obtaining approval from New Jersey regulators.
Exelon (NYSE:EXC - news) said in a filing with the U.S.
Securities
and Exchange Commission that it was still committed to the
acquisition, but its management believed it was no longer
likely to close the deal.
Still, analysts stressed that all outcomes -- closing the
deal, calling it off or renegotiating its terms -- were still a
possibility.
"They must still feel that there is some hope of reaching a
negotiated settlement," said Barry Abramson, a utility analyst
with Gabelli Asset Management Inc.
"If they had an extremely negative feeling, than I think
they would not waste their time" continuing talks with New
Jersey regulators, he added.
PSEG (NYSE:PEG - news) shares were down $2.65, or 3.7 percent, at
$68.25 and Exelon shares up 13 cents at $60.43 in
New York
Stock Exchange trading on Wednesday afternoon.
SLOW APPROVAL PROCESS
Chicago-based Exelon announced its planned acquisition of
Public Service in December 2004, but the two companies have
been slow to win regulatory approvals.
The
Federal Energy Regulatory Commission, the U.S. Justice
Department and several state regulatory bodies have already
signed off on the deal and the only approval Exelon and Public
Service still require is from New Jersey.
But Exelon and PSEG have been unable to come to terms on a
settlement under which the New Jersey Board of Public Utilities
would allow the deal.
In July, the companies submitted what they called their
"last and best" settlement offer -- a package that included
$600 million in rate relief, an electric rate freeze and other
incentives for New Jersey customers. Although the New Jersey
board refused to back that offer, negotiations with the
regulators continued.
In August, New Jersey regulators countered by asking for
more than $200 million in additional rate relief and the sale
of two more peaking power plants than the companies planned to
sell, according to sources close to the discussions.
Sanford Bernstein analyst Hugh Wynne said the distance
between the proposals could kill the deal. But Wynne also
acknowledged that Exelon's negativity about the deal's
prospects could be part of an effort to renegotiate the terms
of the acquisition.
"Any message that goes out that the deal can't be closed is
-- even if only indirectly -- a message to PSEG that it can't
be closed at the current terms," he said.
Because of the decreased probability of completion, Exelon
said it would record a pretax $55 million charge in the third
quarter to write off capitalized costs from the deal.
Public Service said in a separate SEC filing that it has
already expensed all merger-related costs except for an
immaterial amount of information technology costs.
Exelon also said it will record a $741 million charge in
the third quarter because Illinois regulators approved a much
smaller rate increase for its Commonwealth Edison (ComEd)
utility than the company had requested.
ComEd had asked for a $317 million increase, but in July,
the Illinois Commerce Commission only allowed an $8 million
increase.
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