Regulators in Washington, D.C., rejected Exelon Corp.’s takeover of Pepco Holdings Inc., throwing in doubt a $6.8 billion deal. Pepco dropped as much as 20 percent to its lowest price in more than a year.
The three-member Public Service Commission of the District of Columbia voted unanimously at a meeting Tuesday against the merger. Regulators in four states had accepted it with conditions. The companies have 30 days to ask for reconsideration by the commission, according to a statement from the regulator released after the decision.
Exelon Chief Executive Officer Chris Crane wants to add Pepco’s predictable utility revenue, reducing reliance on power sold into competitive wholesale markets by Exelon’s nuclear fleet, the nation’s largest. With Pepco, Exelon would be the largest U.S. utility owner by customer count.
“The pressure is going to be extraordinary on Crane to close this transaction,” Hugh Wynne, a New York-based analyst for Sanford C. Bernstein & Co., said in a phone interview. “He will focus all efforts on this commission and put together a package that satisfies their standard.”
The takeover was proposed 16 months ago. District of Columbia approval was the last needed to complete it.
Exelon and Pepco are “disappointed” and reviewing their options, the companies said in a joint statement after the vote.
“Pepco would become a second-tier company in a much larger corporation whose primary interest is not in distribution, but in generation,” Commission Chairman Betty Ann Kane said on Tuesday during the meeting. “The public policy of the District is that the local electric company should focus solely on providing safe, reliable and affordable distribution service to District residents, businesses and institutions. The evidence in the record is that sale and change in control proposed in the merger would move us in the opposite direction.”
The District of Columbia should have listed conditions for approval, Commissioner Willie L. Phillips said after the vote. While “the merger application as filed is a bad deal for the District,” a transaction “could have achieved benefits for our local utilities and across the region,” Phillips said.
“This highlights how serious state regulators are and how it is important for utility merger applicants to satisfy them,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC.
Pepco, based in Washington, dropped 15 percent to $23.03 at 1:54 p.m. in New York after touching $21.61. Exelon fell 3.9 percent to $31.37.
Exelon offered $27.25 a share in cash for Pepco in April 2014. The combined utilities would serve about 10 million customers in cities including Washington, Chicago, Baltimore and Philadelphia.
Earlier this month, Exelon was allowed to push ahead with its merger when a Maryland judge rejected a bid by the state’s Attorney General to block approval of the deal by Maryland regulators. Regulators in Delaware, New Jersey, and Virginia have signed off on the transaction.