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The following article was originally posted in the Industry News section on the GSE Consulting website.

How hungry is John Rowe for a major acquisition to cap his tenure as CEO of Exelon Corp.? He's looking for deals among slow-growing natural-gas utilities.

Mr. Rowe, 65, told investors at a private meeting Dec. 14 in Chicago that Exelon, the country's largest operator of nuclear power plants and owner of electric utility Commonwealth Edison Co., strongly considered bidding for Nicor Inc., the suburban gas utility that recently agreed to be acquired by Atlanta-based AGL Resources Inc. for $2.4 billion, according to a person who was present. Concerns about the political ramifications of such a deal in Illinois led Exelon to take a pass, Mr. Rowe told the group.

But he made it clear that Exelon is still interested in buying a gas utility, a major change of direction. Until now, Mr. Rowe has pursued power generators that could sell electricity on the unregulated, wholesale market like Exelon's nuclear plants already do in Illinois and the Mid-Atlantic. But low prices are squeezing Exelon's earnings, making the guaranteed, if modest, returns of regulated gas utilities look more enticing.

Mr. Rowe needs to make something happen soon. Profits at Exelon are expected to plunge in 2012, the same year he is scheduled to retire after 14 years at the helm of the Chicago-based company.

Potential targets are plentiful, starting with NiSource Inc. The Merrillville, Ind.-based company, which has a market cap of $4.88 billion, owns gas utilities in Ohio, Pennsylvania, Massachusetts, Mary—land, Virginia and Kentucky, an electric utility in Northwest Indiana and an extensive gas pipeline business positioned to cash in on rising shale gas production in Pennsylvania.

Try as he might, Mr. Rowe hasn't had much luck lately in deal-making. Since forging Exelon in the 2000 merger of Philadelphia-based Peco Energy Co. and former ComEd parent Unicom Corp, he has failed in three attempts to acquire electricity companies.

Any takeover would have to bolster earnings in 2012 and 2013, says a person familiar with Mr. Rowe's thinking. Exelon's net income was flat in 2009 at $2.7 billion, or $4.09 per share, on revenue of $17.3 billion. Earnings are projected to hold steady in 2010 and 2011, but plummet to $3.13 per share in 2012 and $2.71 in 2013, when the full force of falling wholesale power prices hits Exelon.

The company is looking for an acquisition that would bridge the time it will take for energy prices to recover and boost profits at Exelon's nuclear plants.

“Although this is a substantial change in strategy, considering the change in the commodity markets this company is encountering, it makes sense,” says Paul Patterson, utility analyst at Glenrock Associates LLC in New York. He says other energy companies have moved to buy regulated utilities recently as a way to blunt the effect of falling fuel prices.

None has been near the size of Exelon, though, whose shares are worth $27.5 billion. “While we remain focused on organic growth opportunities,” an Exelon spokeswoman says, “we continually evaluate all opportunities to add value for Exelon shareholders, including M&A.”

A NiSource spokesman says the company doesn't comment on potential mergers.

Other possible targets for Exelon include Houston-based CenterPoint Energy Inc., which owns gas utilities in six states, along with pipelines; OneOk Inc., a Tulsa, Okla.-based owner of gas utilities in Oklahoma, Kansas and Texas, as well as pipelines; and Southern Union Co. of Houston, a major pipeline operator with gas utilities in Missouri and Massachusetts.

Representatives of the companies couldn't be reached or had no comment.

At the investor meeting in Chicago, Exelon execs indicated natural-gas transmission and distribution companies could be an attractive area to add more regulated earnings to Exelon's overall business mix,” New York-based Citigroup Inc. analyst Brian Chin wrote in a Dec. 15 report. “However, the problem is that it is difficult to find a natural-gas T&D business in scale that would make a difference to Exelon's consolidated earnings, and one of a valuation that is palatable to the management team.”

Analysts and investment bankers say there are other impediments, too. Exelon's wheezing stock price lost 15% in 2010, to $41.48. It also trades at just 10.5 times estimated 2011 earnings, while the largest gas utilities are valued at 13 to 18 times 2011 earnings. That would make an all-stock deal hard to do.

And while Exelon had $2.76 billion in cash and equivalents as of Sept. 30, a cash deal could pressure its dividend in the lower-profit years.

© 2011 by Crain Communications Inc.

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