Hedge Fund Data Show Slim Chances of Merger Between These Two Utilities Companies

Pepco Holdings, Inc. (NYSE:POM) and Exelon Corporation (NYSE:EXC) jumped after the markets closed on Monday, and opened in the green, as they had filed a request with the District of Columbia Public Service Commission (D.C. PSC) to reconsider the approval of a proposed $6.8-billion merger. Both companies are in “substantive discussions” with the office of Washington Mayor Muriel Bowser, a report from Bloomberg notes, and the firms will be filing a new application with the D.C. PSC if a settlement with Washington is inked. It should be noted, however, that based on our data, hedge funds were not too keen on both Pepco Holdings and Exelon Corporation during the second quarter.

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Pepco Holdings, Inc. (NYSE:POM) and Exelon Corporation (NYSE:EXC)’s merger, which, if approved, would create the largest utility company in America, was rejected by the D.C. officials on August 25, saying that the proposed merger would not benefit their customers. Particularly, the D.C. PSC said that the merger would not necessarily mean more reliable service and would diminish Pepco’s influence in the running of the new entity. The commission also raised concerns that the main interest of Exelon, which owns the largest nuclear energy generation operation in the U.S., is in power generation and not distribution which is the focus of Pepco in Washington.

This may conflict with the drive for cleaner energy in the jurisdiction which would mean investments in facilities that generate clean power. According to Bloomberg, Washington was the last region where Exelon needed approval for the merger after it gained such approval from the federal government and regulators in the states of Maryland, Delaware, New Jersey and Virginia. Both companies say in their filing that the D.C. PSC has not fully explained the contingent conditions for the deal to be approved, adding that the concerns the commission cited in rejecting the deal “can be easily cured”. Bloomberg says further that Exelon is seeking to consolidate to battle low energy prices, weak demand, and added expenses related to observing environmental rules. Pepco offers reliable revenue from its utility business. As we will see below, hedge funds may also be wary of these firms because of these issues.