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Spurned EDF Goes After Constellation Nuclear

If at first you don't succeed, try, try again. After being rebuffed in its first bid for Baltimore-based Constellation Energy in mid-October, European electricity giant Electricité de France S.A. (EDF) is attempting an end-around as subsidiary EDF International proposes to acquire through a joint venture a 50% ownership interest in Constellation's nuclear generation and operation business for $4.5 billion.

In a letter sent to the board of directors of Constellation last week, EDF's proposal 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, and an option under which Constellation could sell nonnuclear generation assets to EDF that have an aggregate value of up to $2 billion.

Under EDF's proposal, the joint venture would run five of Constellation's nuclear reactors, including the two at Nine Mile Point and the one at the Robert E. Ginna plant in New York, and the two at Calvert Cliffs in Maryland. Constellation and EDF are already in a 50-50 joint venture that was created in the summer of 2007 called UniStar Nuclear Energy LLC to develop new nuclear reactors in the U.S. using Areva SA's Evolutionary Power Reactor design.

"As Constellation's largest stockholder, EDF has long admired and been a committed partner to the company," said EDF CEO Pierre Gadonneix. "Constellation is fundamentally strong and EDF, like many others, believes that the proposed MidAmerican transaction significantly undervalues Constellation and its future opportunities."

After Constellation's stock price plunged precipitously in mid-September following the bankruptcy of Lehman Brothers Holdings, with which Constellation had various business relationships, Berkshire Hathaway's MidAmerican Energy Holdings stepped in quickly with an acquisition bid of $26.50/share, or $4.7 billion (see NGI, Sept. 22). Investor fears had centered on the possibility that the parent of distribution utility Baltimore Gas & Electric and the nation's largest wholesale power seller could lose its credit lines.

Soon after, EDF made a rival offer to acquire Constellation for $6.2 billion, or $35/share -- $8.50/share more than what MidAmerican bid (see NGI, Sept. 29). Despite the higher bid, Constellation accepted MidAmerican Energy's offer.

In mid-October the competition to acquire Constellation officially ended, or so it seemed, after EDF said it would not revise its current offer, but would continue its objective of developing new nuclear plants in the United States (see NGI, Oct. 20).

Last week EDF appeared to have changed its strategy. It said the proposal could receive the necessary regulatory approvals for the acquisition of its interest in the nuclear generation and operation business and close the transaction within six to nine months, upon Constellation's termination of its proposed transaction with MidAmerican Energy Holdings and execution of a definitive agreement with EDF.

"We are confident that the terms of our proposal are demonstrably superior to those of the MidAmerican transaction," Gadonneix said. "In addition to providing Constellation stockholders with an opportunity to realize the value of their investment in the company, our proposal provides more than sufficient liquidity to allow Constellation to remain a strong, standalone public company. The EDF proposal also creates an opportunity for Constellation to play an important role, together with EDF, in the development of nuclear generation in Maryland and beyond to the benefit of Constellation's stockholders, employees and customers."

EDF called its proposal a "compelling opportunity" for Constellation stockholders and "a concrete, viable and superior alternative" to the MidAmerican offer. EDF's proposal:

EDF added that the deal leverages its expertise and provides a path for the growth of the existing UniStar partnership between EDF and Constellation. The company added that it believes the deal reflects EDF's long-term industrial and financial commitment to developing new nuclear generation, which contrasts sharply with the MidAmerican profile.

In response to the most recent offer, Constellation confirmed last week that it received an "unsolicited proposal" from EDF. Constellation said its board will review the multi-faceted proposal, which includes proposed transaction documents and additional materials addressing regulatory and governance issues, as soon as possible in a manner consistent with its fiduciary responsibilities to shareholders, as well as its responsibilities under its definitive merger agreement with MidAmerican.

However, Constellation's board said it has not withdrawn, modified or qualified its recommendation that its shareholders vote in favor of the merger with MidAmerican. The special meeting of shareholders to vote on the merger with MidAmerican remains scheduled for Dec. 23.

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