EDF Wins Battle Over Constellation, Buys Stake in Plants
Thursday, December 18, 2008
The fight over the fate of Constellation Energy Group ended yesterday with a big French utility agreeing to pay $4.5 billion for a half interest in the company's nuclear power plants and a Midwest utility controlled by Warren Buffett getting $593 million in cash plus a 10 percent stake in Constellation to drop its takeover bid.
The agreement ends a three-month saga during which MidAmerican Energy Holdings rushed in with a $4.7 billion, $26.50-a-share takeover bid for the cash-starved Constellation, only to run into a higher, $35-a-share competing offer led by Electricite de France, the state-owned French utility.
The final accord gives EDF a greater platform to press for new nuclear power plants in the United States. The French firm plans to make Constellation's proposal for a new unit at the existing Calvert Cliffs nuclear facility a showcase for federal lawmakers.
Baltimore-based Constellation is the parent company of Baltimore Gas & Electric, the utility that serves more than 1 million Maryland residents. And a coalition of consumer and environmental groups, including foes of nuclear power, yesterday issued a statement calling the agreement a "bad deal" for Maryland ratepayers and American taxpayers who might pay for federal loan guarantees to new nuclear plants.
Michael J. Wallace, vice chairman of Constellation, said the final settlement was "excellent" for the company, putting it back on course to expand its nuclear power portfolio while drastically shrinking the size of the trading operations whose liquidity crisis had sent Constellation running into the arms of MidAmerican in mid-September.
Under the final three-way agreement, MidAmerican would receive a $1 billion note on which Constellation will pay 14 percent interest through Dec. 1, 2009.
While Constellation will pay dearly to terminate its acquisition agreement with Buffett's utility, Wallace said that "the liquidity crisis could have cost us more had MidAmerican not been there to give us the life preserver it did at that time." He called MidAmerican "tremendous" and said the final agreement was "amicable."
Buffett is on the board of The Washington Post Co.
Stockholders were less enthusiastic about the deal. A sell-off drove Constellation's stock price down $5.74, or nearly 20 percent, to $23 a share. The entire market capitalization of the company is $4.1 billion. The company will take a $1.2 billion charge in the fourth quarter to cover the costs of the settlement.
"These are unprecedented times," said Maryland Gov. Martin O'Malley (D). "We thought for sure that the deal [with Mid-American] was going to happen. Now if it's a different deal, I'm certainly glad that Constellation is still in operation."
The new agreement does not require approval by the Maryland Public Service Commission because neither EDF nor MidAmerican will acquire more than 10 percent of the company's shares.
But Maryland lawmakers see an opportunity to continue the battle against Constellation, whose BGE subsidiary raised rates by more than 70 percent in 2006 and 2007. State Sen. James C. Rosapepe (D-Prince George's) said he plans to introduce legislation with Sen. E.J. Pipkin (R-Queen Anne's) to force Constellation to put certain power plants that were spun off to an independent unit back into the regulated BGE subsidiary.