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Constellation Sells London Commodities Arm to Goldman

Constellation Energy, continuing to cut back operations after taking a devastating hit from Lehman Brothers Holdings' failure last fall, said last Tuesday it had agreed to divest the majority of its London-based international commodities business, including its coal and freight operations and European energy trading units, to an affiliate of Goldman Sachs.

Terms of the transaction were not disclosed. The pending disposition of the international commodities business is part of a previously announced plan to increase Constellation's liquidity and reduce collateral requirements by divesting select merchant businesses. The company has agreed to an offer from Electricite de France subsidiary EDF Development Inc., which will acquire a 49.99% interest in Constellation's nuclear generation unit for $4.5 billion, and also is pursuing the sale of its Houston-based downstream natural gas trading unit (see NGI, Dec. 22, 2008).

"We are executing against our stated plans to de-risk our merchant business and increase liquidity by sharply reducing the collateral requirements associated with our commodities subsidiaries," said Constellation CEO Mayo A. Shattuck III. "The pending sale of our international commodities business is among several strategic initiatives we're pursuing in the months ahead to strengthen our financial position and transform our core business.

"Market conditions continue to be difficult, but we're actively reducing capital consumption and cash flow risk, and right-sizing the business to address the realities of the new financial and economic environment. Completion of these near-term activities should position Constellation Energy to earn solid risk-adjusted returns while reducing earnings risk and variability."

The international commodities business is primarily based in London and includes the company's coal and freight platforms, as well as its European-focused power, gas and carbon trading operations. The transaction is expected to close by the end of the first quarter of 2009 and is subject to regulatory approvals and other standard conditions.

Constellation's stock price plunged precipitously in mid-September following the bankruptcy of Lehman Brothers, with which Constellation had various business relationships. Berkshire Hathaway's MidAmerican Energy Holdings stepped in quickly with an acquisition bid for the whole company for $26.50/share, or $4.7 billion (see NGI, Sept. 22, 2008). But MidAmerican eventually lost out to EDF, which will pay almost the same amount for a noncontrolling interest in Constellation's nuclear generation unit. That transaction is expected to close in six to nine months.

Constellation had announced its intention to divest its natural gas trading operations shortly after the Lehman Brothers crisis (see NGI, Nov. 10, 2008).

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