French firm seeks nuclear business of Constellation

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.

"This is the kind of competitive situation that Senator E.J. Pipkin and I have been urging for two months," said state Sen. Jim Rosapepe, a Prince George's Democrat. "The best way for ratepayers to get a good deal is for there to be competition between potential acquirers of Constellation and its assets."

The PSC has said it would take a broad look at the effect of MidAmerican's offer on Maryland ratepayers, including weighing arguments about whether a "concrete and viable" alternative buyer would be a better choice.

"It does sound like they [EDF] might be putting some money where their mouth is," said Paul Patterson, an analyst with Glenrock Associates in New York. "I'm not sure how this fits with the political and regulatory environment in Maryland."

If it terminates its deal with MidAmerican, Constellation would have to repay MidAmerican's $1 billion investment, plus 14 percent interest, on Dec. 31, 2009, and also immediately pay a $175 million "break-up" fee. MidAmerican would get a 9.9 percent stake in the company and $418 million in cash for stock that cannot be issued due to regulatory limits.

Constellation shares rose $1.22, or 5.1 percent, to close at $25.15 yesterday.

Baltimore Sun writers Jay Hancock and Laura Smitherman contributed to this article.

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