Donald Fry: Gauging the value of the Exelon-Constellation deal

By Donald C. Fry

The planned Exelon-Constellation merger, announced on April 28, prompted the anticipated media reporting and commentary under headlines proclaiming the “loss” of “Baltimore’s last Fortune 500 company.”

Being a business advocate, I feel compelled to offer a few observations on this proposed merger and how to view its economic impact.

First, as an aside, calling Constellation the city’s “last” Fortune 500 company hints an implied cynicism about the future of Baltimore as a business location.

True, at the moment Constellation is the sole Fortune 500 firm located in Baltimore. But who’s to say it’s the “last” – that other businesses based here won’t grow to Fortune 500 status?

But the real issue here isn’t semantics or status. Its how a city, region, or state, relates to and leverages the elements of its business environment and, specifically, how the proposed Exelon-Constellation merger will impact our own economy.

I understand the tendency to gauge the substance of this – and other mergers between large companies – on whether a location is “winning” or “losing” a corporate headquarters.

But when it comes to Fortune 500 corporate headquarters, most U.S. cities have one or none. The headquarters of more than 20 percent of Fortune 500 companies are located in only six cities – New York, Houston, Dallas, Atlanta, Minneapolis and Chicago.

Having a Fortune 500 company headquarters is a nice thing, but local economies across the U.S. do not revolve around whether or not a city is a major corporate headquarters town or a “branch” town.

These are just labels. A city or state’s economy is shaped more by its business climate, the vitality of the businesses located there, regardless of where they rank on the Fortune 500 list, and the economic realities in the business world.

In any community, what matters most about an employer is not its ranking, but whether the employer delivers growth and vibrancy to a community.

For instance, in most major industries – including telecommunications, banking, railroads, airlines, and utilities – companies consolidate to stay competitive. In the utilities industry, which is into its second decade since deregulation, mergers are accelerating.

The fact is: most industry analysts agree that some kind of consolidation involving Constellation was going to happen sooner or later. The question is: will this proposed Exelon-Constellation merger be good for our city and state?

Once you get beyond the corporate headquarters issue, there is no denying that the terms of the proposed merger create substantial value for Baltimore and Maryland, in terms of real jobs, capital investment, and philanthropy.

Baltimore will not “lose” a company. It will gain jobs when the growth divisions of the combined company – its wholesale and retail power business and its renewable energy business – will be headquartered in Baltimore in a new or substantially renovated building.

Basically, the Constellation component of the merged company will stay here and a major component of Exelon’s operation will move here as well.

The deal also brings with it more than $250 million in direct investment in Maryland, including a $100 credit to each BGE customer, a more than $50 million investment to develop 25 megawatts of renewable energy in Maryland, $10 million to help spur the development of electric vehicle infrastructure, and $4 million to support the EmPower Maryland initiative. Meanwhile, the companies are committed to charitable giving of $10 million annually by the Baltimore-based businesses for at least 10 years.

Also, BGE will still be here as a separate subsidiary managed from BGE headquarters and BGE jobs will not be affected for at least two years.

As far as inevitable mergers go, this fits the category of best-case scenario in terms of economic and community outcomes for Baltimore and Maryland.

We seem to like to engage in pity parties here but, objectively, this deal does not merit one in Maryland. We should have only one thing to say to Exelon: “Welcome.”

It also wouldn’t hurt to show a little love to Constellation executives for working to ensure that Maryland gains some significant benefits from this merger.

Nevertheless, given the existing consolidation trends in business, we in Maryland need to make sure that our state remains a place where all businesses, including Exelon, existing firms here, and prospective businesses elsewhere want to embrace opportunities for growth in our state.

To position our city and state to emerge from the recession as a leading competitor for economic growth, we need to worry less about how many Fortune 500 companies we have and, instead, make sure that we have a sound strategy for business competitiveness.

Elected leaders need to ensure that our local and state governments have a vision – a genuine vision, not just an academic exercise on paper that draws praise and then collects dust on a shelf.

Then, we must ensure that we have government policies relating to business growth that match the vision.

The fact is, in Baltimore and Maryland, we can be what we want to be as a location for business growth – be they major corporate headquarters or otherwise.

Elected leaders, partnering with the business sector, just need to be smart about it.

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