up clears regulatory and political obstacles, its merger with Florida-based FPL Group Inc. will create additional internal challenges.
“We?re concerned about the ability to integrate Constellation?s Wall Street, trading-based culture into the regulated utility culture of FPL,” said Mark Sadeghian, a utility analyst with Chicago-based Morningstar Inc.
Before becoming Constellation?s chairman, president and CEO, Mayo A. Shattuck III served as the chairman of Deutsche Banc Alex. Brown as global head of investment banking and private banking.
“He?s from Wall Street and he?s brought people from Wall Street with him,” Sadeghian said.
Constellation spokesman Robert L. Gould rejects the notion that the two corporate cultures will have trouble coming together.
“The fact is that both companies are competitive in their markets and they will mesh well,” he said.
The possibility of members of the Maryland General Assembly calling a special session and nixing the merger still worries Sadeghian.
“The Maryland legislature is still holding a gun to Constellation?s head,” he said.
Sadeghian believes the public uproar over Constellation?s 72 percent gradual rate hike could end up forcing the political hand ofstate lawmakers.
“The plan still strikes us as a large price increase for consumers, especially relative to the single-digit price increases such as those in Ohio,” he said.
Sadeghian says he still believes the pending merger could spell trouble for the energy companies.
FPL group has succeeded by being a staid, conservatively operated utility, while much of Constellation?s earnings come from the deregulated wholesale energy market, he said.
“Constellation?s low-cost nuclear and coal base-load facilities are concentrated in the desirable wholesale energy market,” he said.
The company took a substantial risk by becoming a pioneer in this sector, but it turned out to be a smart move, he added.
“The huge run-up in U.S. gas and power prices has benefited Constellation?s units substantially,” Sadeghian said.
The question is whether the two management styles can coexist after the merger, he said. “They will have to figure out who is driving the ship.”
But again, Constellation?s Gould said there is absolutely no confusion regarding who will be in charge if the merger is approved.
“FPL?s Lewis Hay will become Constellation?s CEO,” Gould said.
Face-off
Bulls vs. bears about Constellation and FPL?s pending merger:
» Bulls say: The proposed merger with FPL creates an expanding trading platform for Constellation?s crack risk-management and trading group.
» Bears say: Energy trading firms can be risky business with more volatile earning streams than regulated utilities.
Source: Morningstar Inc.
