As sales of key corporate citizens to out-of-town landlords go, the merger of Constellation Energy with FPL Group isn't that bad. So why are they trying to spin us like a dynamo in a heat wave?
"The combined company will maintain a dual headquarters in Juno Beach, Fla., and Baltimore," says the propaganda.
Sorry. Calling the merged power company "Constellation" and having Florida bigwigs sometimes visit Baltimore does not make Baltimore half a headquarters. Or even a fifth.
Like pregnancy and the Heisman Trophy, corporate headquarters are all-or-nothing deals. The headquarters of the new Constellation Energy, parent of Baltimore Gas and Electric, will be Juno Beach, Fla.
Nine of the new company's 15 directors will be from FPL, parent of Florida Power & Light. FPL shareholders will own 60 percent of the concern. The dateline on the merger news release was "Juno Beach, Fla., and Baltimore, Md.," giving Juno Beach primacy despite Baltimore's alphabetical precedence.
The new company's chief executive is Lew Hay, FPL's boss. Headquarters are almost always where the CEO lives. While Hay supposedly will buy a home in Maryland, where he lived while working for Columbia-based U.S. Foodservice in the 1990s, I wouldn't bet that he gets his mail here.
And Mayo Shattuck, Constellation's present CEO and chairman, holds a subordinate position in the new outfit (despite munificent compensation) and can be expected to surrender executive responsibilities there long before Hay does.
Yes, Shattuck is chairman of the board of the new concern. But chairmen usually wield less power than CEOs, and anyway a chairman doesn't make a headquarters. Chairman is a non-operating job whose incumbent frequently lives far from the company.
Yes, Shattuck holds a senior executive position with the new outfit, running deregulated energy markets. But he's not in charge, and the stars say he won't be there long as an employee. His operating job at the new company shares the second tier of the organization chart with three other people, and they all report to Hay.
But don't take my word for it. Here's Shattuck.
"Lew is the CEO, and that's clear and should be clear," he told analysts in New York yesterday. "We talked right from the start about our belief that one guy ought to be in charge, and we've seen others [mergers] where that hasn't been particularly clear."
Shattuck spoke of having stepped in as Constellation CEO "to help out in the last four years" after being an outside board member. That doesn't suggest he sees the company as a long-term employer. Hay said that, "in addition to his role as chairman of the board, Mayo has agreed to initially lead the new competitive energy business."
Note that word: initially.
Shattuck's new employment contract, signed Sunday, requires him to run the deregulated energy segment for no more than a year. After a year he can leave with essentially the same lucrative golden parachute deal he would have had without being employed by the new company.
Influence shifting to Florida aside, however, the buyout contains no obvious darts for Baltimore or the present incarnation of Constellation.
It's a stock-for-stock deal, meaning nobody is piling on debt requiring huge downsizing. Constellation's stock fell $2.52 after the deal was announced. There were some very ticked-off arbitrageurs, who take positions in merger targets hoping the price gets bid up. But the fact that FPL didn't overpay for Constellation means it might not be taking it out of its hide later.
Because each Constellation share will be worth 1.444 shares in the combined company, the effective dividend payout for Constellation shareholders should go up substantially.
BGE's distance from Florida Power & Light's territory limits the money the company can save by combining and shrinking its regulated utility staffs. Constellation's trading operation, a key nexus of financial expertise and leverage, apparently will stay in Baltimore.
And executive assertions that profit growth can come largely through revenue increases and non-employment cost-cutting ring true. As do contentions that power companies must consolidate anyway and that this lets Constellation and FPL build an "endgame" player, as Shattuck describes it, on their terms and schedule.
It's just that the player won't be based in Baltimore. In the Baltimore Business Journal's new "Book of Lists," just hitting the streets, there is a prominent Constellation ad touting the company's contribution to Charm City. The headline reads: "Who says Baltimore isn't a headquarters town?"
Well, yesterday's deal announcement says so. You just have to read between the lines.