(Bloomberg) — Exelon Corp. plans to separate its power-generation unit from the U.S. company’s utilities business in an effort to streamline operations and increase shareholder value.
The Chicago-based utility owner plans to structure the deal as a tax-free spinoff that will be completed in the first quarter of next year, according to a statement Wednesday. Existing Exelon shareholders will receive shares in the new entity, but the company hasn’t yet determined the distribution ratio.
Exelon is the latest company to unload power-generating or pipeline assets to focus on regulated utilities that are guaranteed more predictable returns. The company owns more than 31 gigawatts of capacity including the largest U.S. fleet of nuclear plants, which has faced pressure as reactors struggle to compete against natural gas, wind and solar. That’s been a drag on the shares and the public markets will likely see benefits in separating the units, according to Katie Bays, an analyst at FiscalNote Markets.
“The market doesn’t assign a lot of value to merchant fleets,” and boosting the company’s share price is probably one of the main drivers for the transaction, Bays said. “A hybrid company like Exelon will trade at a discount.”
Exelon shares fell 0.5% to $40.61 at 11:35 p.m. in New York. The company’s six utility units provide electricity and natural gas to 10 million customers in five states and the District of Columbia.
Exelon’s shares have closed below $45 since the U.S. went into lockdown last March because of the coronavirus pandemic. Corvex Management, an activist investor, estimated in October the company could be worth about $60 a share if it separates its assets. Exelon said in November it was conducting a review of its operations and that it had advisers to evaluate such a move.
Exelon’s advisers on the spinoff include Goldman Sachs Group Inc., Barclays Plc and Centerview Partners.
“This morning’s announcement is a very good strategic move for us,” Exelon Chief Executive Officer Christopher Crane said on a conference call Wednesday.
(Updates with comment from CEO in last paragraph.)
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