French firm seeks nuclear business of Constellation

December 03, 2008|By Hanah Cho | Hanah Cho,

French utility Electricite de France, rebuffed in its efforts to acquire Constellation Energy Group, is expected today to offer to buy 50 percent of Constellation's nuclear power business for nearly the same price that MidAmerican Energy Holdings Co. would pay for all of Constellation, sources familiar with the situation said late yesterday.

EDF is Constellation's largest shareholder and partner in new nuclear development. On Dec. 23, Constellation shareholders will vote on the $4.7 billion transaction with MidAmerican, which is controlled by billionaire Warren Buffett.

"It definitely clouds the picture and gives the shareholders something to contemplate," said Paul Justice, an analyst with Morningstar.

EDF is also proposing to provide Baltimore-based Constellation an immediate $1 billion cash infusion, an investment that would be credited against the $4.5 billion purchase price of the nuclear assets.

EDF's proposal would require review by the Nuclear Regulatory Commission and the Committee on Foreign Investment in the United States; it is less clear whether it would require approval by Constellation shareholders or review by the Maryland Public Service Commission, which is examining the MidAmerican transaction.

Constellation, one of only two Fortune 500 companies based in the Baltimore region, would remain a publicly traded company headquartered in Baltimore if the board accepts EDF's offer, according to the sources.

Constellation would be left with Baltimore Gas and Electric, the utility that serves 1.1 million electric and gas customers in Maryland; its coal- and natural-gas power generation business; its commodities trading operations and half the nuclear business.

Constellation's nuclear assets include the Calvert Cliffs units in Southern Maryland and the Nine Mile Point and R.E. Ginna plants in New York state.

EDF's offer for half the nuclear unit puts the total value of Constellation at $52 a share, nearly double MidAmerican's $26.50-per-share bid, the sources say.

MidAmerican's bid is for one-fourth of Constellation's market value at the beginning of the year.

Constellation sold itself to MidAmerican in mid-September to avoid bankruptcy as it faced a liquidity crisis in the commodities trading operations. As part of the deal, MidAmerican provided an immediate $1 billion cash cushion.

Constellation picked MidAmerican's bid over EDF's $35-a-share offer with two American private equity firms, contending that MidAmerican's offer was superior because of Buffett's stabilizing effect on a skittish market and the likelihood of easier regulatory approval.

In filings yesterday, Constellation painted a bleak outlook for its survival if shareholders don't approve the deal with MidAmerican, including losing $1.4 billion in financing.

"We are focused on completing our merger with MidAmerican Energy Holdings and, beyond that, we cannot comment on market rumor and/or speculation," Constellation spokesman Rob Gould said last night.

Several state officials, including Gov. Martin O'Malley, welcomed the Constellation sale to MidAmerican as a way to avert a potential crisis. Buffett met with O'Malley on Sunday night at the governor's mansion in Annapolis in what aides described as a "get-to-know-you" session.

O'Malley said they did not discuss the regulatory process.

"They still have to go through that regulatory process at the Public Service Commission," O'Malley said. "Our conversations were much broader and related to our country's energy future really. It was a much more macro and global conversation than the details of PSC approval."

But in recent weeks, some shareholders have wondered whether Constellation would survive as a stand-alone company, given that it is trying to raise added cash through asset sales and reduce exposure to its risky commodities-trading operations.

And shareholders have filed more than a half-dozen lawsuits against Constellation and its management, saying the $26.50-per-share price is too low.

After mulling its options, EDF decided not to make another bid in October, citing the difficult credit market. But EDF also left a small opening, saying it would review all possibilities.

EDF nearly doubled its stake in Constellation to 9.5 percent in August, paying $68.49 per share. It lost more than $340 million in three weeks under the offer from MidAmerican.

The state-controlled French company has been taking steps to protect its equity interest as well as its joint venture with Constellation to build new nuclear reactors in the United States.

It has a voice in the regulatory approval process at the PSC, which plans to make a decision about the MidAmerican deal by April 15. EDF hired a Washington attorney who is a former PSC chairman to represent the company before the PSC. It also hired Annapolis lawyer Joel. D. Rozner of Rifkin, Livingston, Levitan & Silver to be its local lobbyist.

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