EdF makes renewed Constellation offer

03 December 2008

Electricité de France (EdF) has proposed to acquire half of Constellation Energy's nuclear generation and operation business for $4.5 billion, an offer it says is a "superior alternative" to MidAmerican Energy's offer to acquire the whole of Constellation for $4.7 billion.
 

Nine Mile Point (Constellation) 
Nine Mile Point (Image: Constellation)
EdF has written to Constellation's board of directors with an offer to acquire through a joint venture a 50% ownership interest in its nuclear generation and operation business for $4.5 billion. The proposal also provides for an up-front $1 billion cash investment in Constellation to be credited against the purchase price for EdF's interest in the nuclear generation business. In addition, the deal will also include an option for Constellation to sell up to $2 billion worth of non-nuclear generation assets to EdF.
 

EdF said that, should Constellation Energy except its offer and terminate its proposed deal with MidAmerican, it expects to be able to receive the necessary regulatory approvals for the purchase of half of Constellation's nuclear assets and complete the transaction within six to nine months.
 

In mid-September, MidAmerican Energy Holdings - over 80% owned by Berkshire Hathaway, which itself is chaired by billionaire Warren Buffet - offered to pay $26.50 per Constellation share, valuing the business at $4.7 billion. Additionally, under the transaction, Constellation will issue $1 billion of preferred equity yielding 8% to MidAmerican. That deal was approved by the boards of both companies.
 

Days later EdF submitted a bid for Constellation, rivalling the surprise takeover move made by MidAmerican. An EdF statement did not make clear the value of its rival bid but media reports put it at some $6.2 billion - well beyond MidAmerican's $4.7 billion. EdF's bid, however, was rejected by Constellation's board, which said that it remained committed to MidAmerican's offer. EdF subsequently withdrew its offer and said it would not make an improved one. EDF International, a subsidiary of EdF, already owned 9.5% of Constellation in line with earlier agreements between the companies.
 

EdF said that its latest offer represents the equivalent of an offer of some $52 per Constellation share, "a financial premium of approximately 96% above the MidAmerican proposal and a fair price for 50% of Constellation's nuclear generation business." It added that the offer "eliminates much of the conditionality that would accompany an offer to acquire control of Constellation both in terms of regulatory risk and the risk that Constellation would face in refinancing its existing credit arrangements upon a change of control." EdF said that its proposal is not subject to a financing condition.
 

Pierre Gadonneix, chairman and CEO of EdF, commented: "Constellation is fundamentally strong and EdF, like many others, believes that the proposed MidAmerican transaction significantly undervalues Constellation and its future opportunities."
 

He added that "the terms of our proposal are demonstrably superior to those of the MidAmerican transaction" and that it "provides more than sufficient liquidity to allow Constellation to remain a strong, standalone public company."
 

Constellation has yet to respond to EdF's offer. The company describes itself as a major generator of electricity in the USA, owning 83 electricity generating plants across the country, with a combined generating capacity of some 9000 MWe. More than 60% of Constellation's generating output is from nuclear power plants - its nuclear generation division operates five reactors at three sites (Nine Mile Point and R E Ginna in New York; and Calvert Cliffs in Maryland).
 

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