Pepco Holdings Inc.’s (POM) shareholders have approved the $6.8 billion merger deal with Exelon Corporation (EXC), which was initially announced on Apr 30. The approval by Pepco’s shareholders cleared a major hurdle and the transaction is now expected to close in the second half of 2015. The deal is yet to receive necessary regulatory nods from the different utility commissions.

Post completion, this merger will create a leading Mid-Atlantic natural gas and electric utility serving nearly 10 million consumers. The combined entity will benefit both Exelon’s and Pepco’s shareholders. For more details read Exelon Corp. to Acquire Pepco, Expand in Mid-Atlantic.

Pepco’s shares had reached a 52-week high of $27.92 following the merger announcement. Eventually the shares have hovered near the low $27 level in the intervening period. Hence, Pepco shareholders will still enjoy a premium considering the Exelon offer price of $27.25 per share.

This merger will undoubtedly benefit Exelon and its customers. Similarly, Pepco Holdings’ customers will gain from the $100 million customer benefit fund that Exelon is creating for the public service commissions in Pepco’s service territories. The fund will be utilized by Pepco’s legacy customers who will benefit from rate credits, assistance programs and energy efficiency.

The merger will create new employment opportunities and benefit the economies of Delaware, Maryland, New Jersey and Washington, D.C.

We expect to see a lot more consolidation going forward in the utility space as it will invariably lead to cost synergies and better utilization of resources. We believe that in a mature energy market like the U.S., mergers and acquisitions represent a sure way to enhance market share. In Jun 23, Wisconsin Energy Corp. (WEC) and Integrys Energy Group Inc. (TEG) entered into an agreement under which the former will acquire the latter in a transaction valued at $9.1 billion (read: Wisconsin Energy to Buy Integrys to Expand Midwest Operations).

Pepco Holdings currently holds a Zacks Rank #2 (Buy).

Read the Full Research Report on WEC
Read the Full Research Report on POM
Read the Full Research Report on EXC
Read the Full Research Report on TEG


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