Exelon is acquiring Public Service Enterprise Group (PSEG) in a $12 billion stock deal that would create the nation's largest power-generation company, with customers in Illinois...

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NEWARK, N.J. — Exelon is acquiring Public Service Enterprise Group (PSEG) in a $12 billion stock deal that would create the nation’s largest power-generation company, with customers in Illinois, New Jersey and Pennsylvania.

“We will be the company that keeps over 18 million people warm in the winter, and cool in the summer,” John Rowe, chairman, president and CEO of Exelon, said yesterday in announcing the deal that would create Exelon Electric & Gas.

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Roughly 1,400 jobs are expected to be cut over the next two years, part of the effort to achieve an estimated half-billion dollars in savings, said Thomas O’Flynn, PSEG chief financial officer. The two companies employ 28,500 people.

The new company would have $79 billion in assets, with $27 billion in annual revenues and $3.2 billion in annual profit, the companies said.

Shares of both companies finished the day higher, despite some concerns that regulatory approval might be an issue for the deal, which is expected to close in 12 to 15 months.

PSEG shares surged $3.29, or 7 percent, to finish at $50.56 — a 52-week high for the stock.

Exelon shares rose $1.19, or 2.8 percent, to close at $43.05 — also within striking distance of their 52-week high of $43.58.

Under the agreement, each Public Service share would be converted into 1.225 shares of Exelon. The offer values Public Service at $51.28 a share, an 8.5 percent premium to its closing price of $47.27 Friday. After the deal, PSEG stockholders would own about 32 percent, or 306 million of Exelon Electric & Gas’ pro-forma shares outstanding, and Exelon shareholders would own about 68 percent, or 650 million shares.

Chicago-based Exelon and Newark-based PSEG said both of their boards had unanimously approved the move.

David Schanzer, a utility analyst at Janney Montgomery Scott, foresaw no problem with regulators in Illinois and Pennsylvania, where Exelon has customers, but said New Jersey typically was skeptical of out-of-state companies controlling a utility that serves its residents.

“The question is whether the feds and state of New Jersey will put up with it,” Schanzer said. “If they were caught by surprise, this could be a little bit more of a difficult process.”

Federal regulators would be concerned about the market power of the combined company, Schanzer said. “This is going to be the 800-pound gorilla,” he said.

The deal also might encourage other utilities to consider merging to compete, he said.

Analyst Hugh Wynne at Bernstein & Co. said he saw the deal as a good fit commercially and a sound transaction financially. Exelon has sustained its growth by making operational improvements, cutting costs and selling noncore businesses, he said.

“Now that they’ve pretty much squeezed that orange dry, they have to find another company where they can repeat that process of cost improvement,” Wynne said.

PSEG, although it has a “fairly bloated” cost structure, brings several years of experience in buying energy at auctions, which Exelon may soon be allowed to do in Illinois, he said.

The combined company would be based in Chicago and would serve 7 million electric users and 2 million natural-gas customers. It would be led by Rowe, Exelon’s current top executive.

The company would be the nation’s largest power generator, with about 52,000 megawatts of domestic capacity, the firms said.