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PARIS, Dec. 3 /PRNewswire-FirstCall/ -- Electricite de France S.A. ("EDF")
today announced that, through its subsidiary EDF International, it has sent a
letter to the Board of Directors of Constellation Energy (NYSE: CEG) proposing
to acquire a 50% ownership interest in Constellation's nuclear generation and
operation business for $4.5 billion. EDF's 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 and operation
business, and an option pursuant to which Constellation could sell non-nuclear
generation assets to EDF having an aggregate value of up to $2 billion. EDF
expects it can 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 Company and execution of
a definitive agreement with EDF.
"As Constellation's largest stockholder, EDF has long admired and been a
committed partner to Constellation," said Pierre Gadonneix, Chairman and Chief
Executive Officer of EDF. "We continue to believe that Constellation is
fundamentally strong and EDF, like many others, believes that the proposed
MidAmerican transaction significantly undervalues Constellation and its future
opportunities."
"We are confident that the terms of our proposal are demonstrably superior
to those of the MidAmerican transaction. 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," continued Mr. Gadonneix.
The EDF proposal is a compelling opportunity for Constellation
stockholders and a concrete, viable and superior alternative to the
MidAmerican offer. EDF believes that Constellation's Board of Directors should
determine that EDF's proposal constitutes, or is reasonably likely to result
in, a Superior Proposal under the MidAmerican merger agreement. Even if
Constellation's Board would not make this determination, EDF believes that the
terms of its proposal provide the basis necessary for the Board to change its
recommendation of the MidAmerican transaction consistent with its duties to
the Company and its stockholders. EDF's proposal:
-- Places a value of $4.5 billion on 50% of Constellation's nuclear
business alone, which EDF believes to be an attractive valuation when compared
to the range of values supported by publicly available information, whether
the valuation is based on sum-of-the-parts, discounted cash flow or EBITDA
trading multiples analyses;
-- Represents the equivalent of an offer of around $52 per share of
Constellation common stock, a financial premium of approximately 96% above the
MidAmerican proposal (and a demonstrably strong price for 50% of
Constellation's nuclear generation and operation business);
-- Provides Constellation with significantly more liquidity than is
necessary to permit Constellation to remain a publicly traded standalone
company in which its stockholders can realize the full value of their
investment and participate in the future growth of the Company, as well as
offsets incremental costs associated with termination of the MidAmerican
transaction;
-- Leverages the expertise of EDF Group, a global leader in the nuclear
energy industry, and provides a path for the growth of the existing UniStar
partnership between EDF and Constellation;
-- Reflects EDF Group's long-term industrial and financial commitment to
the development of new nuclear generation, which contrasts sharply with the
MidAmerican profile; and
-- 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's proposal is not subject to a financing condition. EDF will finance
the transaction, including the proposed liquidity arrangements, through
corporate funds and credit facilities.
EDF will work closely with Maryland regulators to keep them informed,
although approval of the Maryland Public Service Commission is not required.
Approval from Constellation's stockholders is not required.
A copy of the letter EDF sent to the Constellation Board of Directors
regarding its proposal is below and has been filed, with supporting
information, on a Schedule 13D with the Securities and Exchange Commission.
December 2, 2008
The Board of Directors of
Constellation Energy Group, Inc.
c/o Mayo A. Shattuck III
Chairman and Chief Executive Officer
750 E. Pratt Street
Baltimore, MD 21202
Dear Ladies and Gentlemen,
Electricite de France International, SA ("EDFI"), a wholly owned
subsidiary of EDF, has long admired and been a committed partner of
Constellation Energy Group, Inc. ("Constellation" or the "Company"). Your hard
work and dedication are the reason that EDFI is currently the largest
stockholder of Constellation. Despite recent setbacks, we believe that
Constellation is a fundamentally strong company with a bright future. In
particular, we have a strong interest in the growing profile of nuclear energy
in the United States and the important role that Constellation is poised to
play. We believe the Company today and its future opportunities are
significantly undervalued in the proposed acquisition by MidAmerican Energy
Holdings Company ("MidAmerican"). We are not alone in this belief --
stockholders, ratepayers, regulatory authorities, legislators and analysts
have all been outspoken in their view that the MidAmerican transaction was
accepted under extraordinary circumstances and is contrary to the best
interests of the Company and its constituents. We strongly believe that
Constellation's stockholders deserve a transaction that appropriately values
Constellation and delivers that value to all of Constellation's stockholders.
For these reasons, EDFI is pleased to submit the proposal described in this
letter which is clearly superior to the MidAmerican transaction.
As more fully described below, subject to the terms and conditions of this
letter, our proposal provides for:
-- EDFI's purchase of a 50% ownership interest in the nuclear generation
and operation business of Constellation for a purchase price of $4.5 billion;
-- An up-front $1 billion cash investment in Constellation in the form of
a nonconvertible cumulative preferred stock; and
-- An asset put option pursuant to which Constellation could, at its
option, sell to EDFI non-nuclear generation assets having an aggregate value
of up to $2 billion.
Our proposal places a value of $4.5 billion on 50% of the Company's
nuclear business alone, which we believe to be an attractive valuation when
compared to the range of values supported by publicly available information,
whether the valuation is based on sum-of-the-parts, discounted cash flow or
EBITDA trading multiples analyses. Such value represents an implied price of
around $52 per share of Constellation common stock. In contrast, MidAmerican's
proposal places a value of approximately $4.7 billion on the entire Company, a
valuation that is merely $200 million higher than our proposal for only 50% of
the Company's nuclear business and does not adequately reflect the Company's
financial results and projections, even when taking into account the recent
turmoil in financial markets. The implied value per share represented by
EDFI's proposal constitutes a 96% premium over the $26.50 per share price
proposed to be paid in the MidAmerican transaction. We have provided the
support for our determination of the implied value of EDFI's proposal in Annex
A. We believe our analyses provide strong support for Constellation's Board
and stockholders to conclude that our proposal constitutes a superior value
proposition.
Our proposal is a compelling opportunity for Constellation stockholders
and a concrete, viable and superior alternative to the MidAmerican offer. We
believe that the Company's Board should determine that our proposal to acquire
a 50% ownership interest in the Company's nuclear generation and operation
business, together with our proposed put arrangement, constitutes, or is
reasonably likely to result in, a Superior Proposal under the MidAmerican
merger agreement. Even if the Company's Board of Directors would not make this
determination, we believe that the terms of our proposal provide the basis
necessary for the Board to change its recommendation of the MidAmerican
transaction consistent with its duties to the Company and its stockholders.
Our proposal:
-- As already noted, represents the equivalent of an offer of around $52
per share of Constellation common stock, a financial premium of approximately
96% above the MidAmerican proposal (and a demonstrably strong price for 50% of
Constellation's nuclear generation and operation business);
-- Provides Constellation with significantly more liquidity than is
necessary to permit the Company to remain a publicly traded standalone company
in which Constellation stockholders can realize the full value of their
investment and participate in the future growth of the Company, as well as
offsets incremental costs associated with termination of the MidAmerican
transaction;
-- Leverages the expertise of EDF Group, a global leader in the nuclear
energy industry, and provides a path for the growth of the existing UniStar
partnership between EDFI and Constellation;
-- Reflects EDF Group's long-term industrial and financial commitment to
the development of new nuclear generation which contrasts sharply with the
MidAmerican profile; and
--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 the Company would face in refinancing its existing credit arrangements
upon a change of control.
Our worldwide experience in the nuclear industry will permit us to meet
the regulatory requirements that apply to our proposal in an expeditious
manner. Further, due to our familiarity with Constellation's nuclear assets
and our general experience in the nuclear industry, we do not require any due
diligence investigation prior to entering into a transaction with the Company
or any rights to post-closing indemnification, which would be customary for a
purchaser in a transaction of this nature. However, we will require your
cooperation and access to the Company's non-public contracts that bear on the
optimal manner in which EDFI and Constellation should structure and document
the proposed joint venture. Accordingly, our proposal is in immediately
executable form subject to termination of the MidAmerican transaction and
confirmation by Constellation and EDFI of the final transaction terms and
optimal structure. Our proposal has been approved by the Board of Directors of
EDFI and has received all other corporate approvals. This transaction would
not require the approval of Constellation's stockholders. Below you will find
a more detailed summary of our proposal.
Proposed Joint Venture
The transaction would be structured as a 50/50 nuclear generation and
operation business joint venture between Constellation and EDFI (which, for
purposes of this proposal, shall include any wholly owned subsidiary of EDFI
that may be the actual transaction party). Subject to confirmation by the
Company of the most efficient transaction mechanics, including from a tax
perspective, we would expect that EDFI would pay the Company $4.5 billion in
cash (less the $1 billion previously paid to the Company pursuant to the EDFI
preferred stock investment, as described in more detail below) for a 50%
ownership interest in Constellation Energy Nuclear Group, LLC ("CENG") (which
we assume continues to hold 100% of the interests owned by the Company in
Calvert Cliffs' Units 1 and 2, Nine Mile Point Units 1 and 2 and Ginna and the
operators thereof). In the event any portion of Constellation's nuclear
business or operations is not held or conducted directly or indirectly through
CENG, we would expect to acquire a 50% interest in any other Constellation
entity that holds or operates any such portion of the Company's nuclear
business or operations. To the extent the unit contingent power purchase
agreements entered into by the Company in connection with the acquisition of
Nine Mile Point Units 1 and 2 and Ginna are housed outside of CENG, EDFI would
acquire its indirect 50% interest in such units subject to the terms and
conditions of such power purchase agreements. In such event, we would expect
that the power purchase agreements would be assigned to CENG or another entity
in the nuclear joint venture such that they would become an obligation of the
joint venture or its subsidiaries and not of Constellation alone. Also, given
that CENG currently holds Constellation's 50% ownership interest in UniStar,
the Company would be entitled to transfer such ownership interest to an entity
outside CENG, so as to maintain its 50% ownership interest.
Attached hereto as Exhibit 1 is a master put option and membership
interest purchase agreement (the "Transaction Agreement"). As you will note,
the acquisition of a 50% ownership interest in CENG would be on a cash-free
and debt-free basis. Our obligation to acquire our 50% interest would be
subject only to customary conditions, including the receipt of required
regulatory approvals and other conditions similar to those contained in the
MidAmerican merger agreement. The transaction is not subject to a financing
condition; rather, we will commit to have sufficient funds available through
corporate funds and credit facilities to finance the transaction, including
the proposed liquidity arrangement. Also attached as Exhibit 2 hereto is an
Operating Agreement for the nuclear joint venture, which is modeled off of the
existing UniStar operating agreement (which would remain in place). We believe
the operating agreement is fair, complete and in executable form, but we would
be willing to discuss its terms with you, when we are invited to do so. With
your cooperation, we are prepared to finalize in only a few days the joint
venture structure and terms and execute definitive agreements.
As you and your stockholders are aware, EDF Group is one of the leading
nuclear generating companies in the world. UniStar is an important growth
driver for the Company, and our proposal allows Constellation's stockholders
to realize the extraordinary value inherent in the UniStar opportunities.
Moreover, should this proposed transaction be completed, the combination of
EDFI's first-class experience at operations and scale in sourcing material and
services in the nuclear sector and the Company's very strong experience in
nuclear operations and operating record could improve the underlying cost
structure of CENG, and deliver even more value to the Company. This added
value to the Company and its stockholders of the potential synergies has been
estimated in excess of $100 million per annum in Annex A.
Joint Venture Regulatory Approvals and Governance Matters
We believe that the regulatory approvals needed to consummate the nuclear
joint venture transaction include approvals of the Federal Energy Regulatory
Commission ("FERC"), the Nuclear Regulatory Commission ("NRC"), the Committee
on Foreign Investment in the United States ("CFIUS") and the New York Public
Service Commission and the expiration or termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Approval of
the Maryland Public Service Commission is not required, although we plan to
work closely with Maryland regulators to keep them informed. We do not expect
the nuclear joint venture regulatory approvals process to raise any issues
which we have not addressed in our proposal.
Through our UniStar joint venture with Constellation, we have gained
significant experience in the U.S. nuclear sector and believe this positions
us well to address nuclear regulatory issues. We are committed to mitigating
issues with respect to foreign ownership so that such approvals can be
obtained as quickly as possible. Accordingly, we are employing a structure in
which EDFI would own not more than 50% of the ownership interest in
Constellation's nuclear business, together with other governance provisions
that have been used in prior transactions involving foreign persons that have
received NRC and CFIUS approval. The governance provisions are based on the
term sheet that EDFI and the Company largely agreed on this past summer prior
to your entering into the MidAmerican transaction and, accordingly, should be
familiar to you.
Attached as Annex B to this letter are the details of our proposed
governance structure (as reflected in the form of Operating Agreement) and, as
Annex C, an outline of the NRC, FERC and other nuclear joint venture
regulatory approval requirements and an explanation of how our proposed
transaction both meets and exceeds those requirements. We are highly confident
that we can obtain all such approvals within six to nine months.
In addition, from the period between signing of the definitive Transaction
Agreement through closing of the nuclear joint venture, Constellation would
grant EDFI the right to have an "observer" at the Constellation Energy Group
Board of Directors, who will have the right to attend all board meetings of
the Constellation Board (and committees thereof) and receive copies of
communications sent to the Constellation Board (and committees thereof). From
and after the closing of the purchase of the 50% interest in the nuclear
business and operations, EDFI would have the right to appoint a member to
Constellation's Board of Directors. With respect to each of the observer and
the director appointed by EDFI, we would of course agree to appropriate
restrictions to address conflict of interest situations (identical to the
provisions agreed to by MidAmerican), to ensure that such persons are
appropriately screened from restricted national security data, and such other
restrictions reasonably requested by regulatory agencies in connection with
their review and approval of the transaction. We will also ask for a monthly
reporting for the trading activities.
Finally, in connection with the signing of the Transaction Agreement,
Constellation and EDFI shall enter into an amendment to the existing Investor
Agreement and other necessary documentation to eliminate, subject to the
receipt of required regulatory approvals, any prohibition on EDFI's
disposition or acquisition of additional shares of common stock of
Constellation and to lift the voting restrictions in Section 3.2 of the
Investor Agreement in case of a public offer for Constellation, a capital
increase or other extraordinary transaction involving Constellation. This
amendment would also document the director appointment right discussed above.
Addressing Liquidity Needs
EDFI proposes to invest in, or make available to, Constellation an amount
sufficient to address both Constellation's interim liquidity needs as we have
determined them based on publicly available information and costs arising with
the termination of the MidAmerican merger agreement. We expect that such
liquidity arrangement would have several components.
Upon termination of the MidAmerican transaction, we will invest in $1
billion of Constellation nonconvertible cumulative preferred stock (the
"Series B Preferred"). The amount of any investment by EDFI in Series B
Preferred would be credited against the purchase price for the 50% ownership
interest in CENG, such that, at the closing of the joint venture transaction,
EDFI would surrender the Series B Preferred to Constellation as payment for $1
billion of the $4.5 billion purchase price. The Series B Preferred would also
be subject to mandatory redemption by the Company upon termination of the
Transaction Agreement. The issuance of the Series B Preferred should not
require any vote of Constellation's stockholders. The form of articles
supplementary creating the Series B Preferred, a preferred stock purchase
agreement and an investor rights agreement are attached to this letter as
Annex D. We have modeled these documents on the MidAmerican Series A Preferred
Stock documents, and have included redlines showing our revisions thereto.
As part of the Transaction Agreement, we would also agree to a put
arrangement, granting Constellation the option to put selected non-nuclear
power generation assets, with an aggregate value of up to $2 billion, to EDFI,
exercisable partly or fully at any time between signing and closing of our
proposed nuclear joint venture transaction. Exercise of a put option would be
conditioned upon receipt of FERC, HSR and any state public service commission
approvals, the receipt of required third-party consents and the absence of any
material liens on the assets to be transferred pursuant to the put. We would
apply for such approvals and consents, on a conditional basis, shortly
following execution of the Transaction Agreement, so that exercise of the put
option would be available to the Company on a timely basis. We would expect
that all such approvals could be obtained within ninety days of application
therefor. The put option is included in the Transaction Agreement and a list
of the generation assets subject to the put, and the price at which
Constellation would be entitled to sell them to EDFI, is included as Annex E
hereto.
With this package of liquidity arrangements in place upon termination of
the MidAmerican merger agreement, Constellation would have sufficient funds
from the proceeds of the issuance of the Series B Preferred to pay the $175
million termination fee, if due to MidAmerican, and any costs related to the
MidAmerican preferred stock. In addition, the liquidity provided by the $1
billion of Series B Preferred, the additional $3.5 billion from the
acquisition of 50% of the nuclear business and the $2 billion non-nuclear
plant put option, in combination with the Company's current liquidity
improvement plan of various asset and trading book sales and drawing down its
commodities trading book, will more than cover all liquidity needs of the
Company, including redemption of the costly MidAmerican 14% senior note upon
closing of any put transaction, and all potential bank financings that might
come due as a result of the consummation of our nuclear joint venture
transaction.
Our proposed commitments on liquidity are substantially stronger than
those made by MidAmerican. Our analysis, based on publicly available
information, of the Company's liquidity position after taking into account the
liquidity we propose to provide is attached hereto as Annex F. Such analysis
should assure the Company's Board of Directors and its stockholders of the
adequacy of the Company's liquidity position in connection with our proposed
transaction and of the strong credit profile and rating that would result from
completion of the transaction.
About EDFI and the EDF Group
The EDF Group, one of the leaders in the energy market in Europe, is an
integrated energy company active in all businesses: production, transport,
distribution, energy selling and trading. The Group is the leading electricity
producer in Europe. Our nuclear production capacity, the largest in the world,
consists of 58 power plants on 19 sites. In France, the Group has mainly
nuclear and hydroelectric power plants where 95% of the electricity output
involves no CO2 emissions. EDF's transport and distribution subsidiaries
operate 1,246,000 km of low and medium-voltage overhead and underground
electricity lines and around 100,000 km of high and very high-voltage
networks. The Group is involved in supplying energy and services to more than
38 million customers around the world, including more than 28 million in
France. The Group generated consolidated sales of euro 59.6 billion, or $76.3
billion, in 2007, of which 44% originated in Europe excluding France. EDF is
listed on the NYSE-Euronext Paris stock exchange as one of the largest market
cap companies.
Next Steps
As you know, it was necessary to communicate our proposal to you by letter
because of the provisions of the Company's merger agreement with MidAmerican.
We believe that the Constellation Board should determine that our proposal to
acquire a 50% ownership interest in CENG, together with our proposed put
arrangement, constitutes, or is reasonably likely to result in, a Superior
Proposal under the MidAmerican merger agreement. Even if the Company's Board
of Directors would not make this determination, we believe that the terms of
our proposal provide the basis necessary for the Board to change its
recommendation of the MidAmerican transaction consistent with its duties to
the Company and its stockholders. In either event, we propose to present the
proposal outlined in this letter to the Constellation Board of Directors and
answer any questions you and your representatives may have.
In addition, although EDFI reserves all rights to challenge such
provisions and we do not believe, in any event, they are applicable to our
proposal, please consider this letter a request for a waiver and release from
the "standstill" provisions contained in the Investor Agreement between EDFI
and Constellation. Please confirm to us that such provisions have been waived.
We respectfully request that you provide this confirmation as soon as
possible, so that we may promptly commence discussions. Further, in light of
our presentation of this proposal to the Board, please consider this letter a
request for a waiver of the voting restrictions in Section 3.2 of such
agreement.
Notwithstanding the onerous limitations and informational disadvantage
imposed on us by the terms of the MidAmerican transaction, we are confident
that, after you have considered our proposal, you will agree that its terms
are demonstrably superior to those of the MidAmerican transaction. We also
think you will agree that, as our proposal both provides Constellation's
stockholders an opportunity to realize the value of their investment in the
Company as well as creates an opportunity for Constellation to play an
important role, together with EDFI, in the development of nuclear generation
in Maryland and beyond, ours is a transaction that will have the broad support
of the community and regulators.
We have gone to great lengths to provide you with executable documentation
based on the limited information that is available to us. However, as you
would expect, there will be no legally binding contract or agreement between
us regarding the proposed transaction unless and until a definitive
transaction agreement is executed.
We, together with our financial and legal advisors, are prepared to move
forward immediately with our proposal and to devote our full efforts and
resources to pursue this transaction on an expedited basis. If you, your
management, or your advisors have any questions or responses to this proposal,
please either contact me at + 33 (0) 1 40 42 31 25, or our financial advisor,
Paul Dabbar, Managing Director, J.P. Morgan, at +1 212.622.2287. We look
forward to hearing from you.
Sincerely,
Electricite de France International, SA
By: /s/ Daniel Camus
Name: Daniel Camus
Title: Chairman
CC: Mike Wallace
Roger Wood
J.P. Morgan is acting as exclusive financial advisor, and Skadden, Arps,
Slate, Meagher & Flom LLP is serving as legal adviser, to EDF.
About EDF
The EDF Group, one of the leaders in the energy market in Europe, is an
integrated energy company active in all businesses: production, transport,
distribution, energy selling and trading. The Group is the leading electricity
producer in Europe. EDF's nuclear production capacity, the largest in the
world, consists of 58 power plants on 19 sites. In France, it has mainly
nuclear and hydroelectric power plants where 95% of the electricity output
involves no CO2 emissions. EDF's transport and distribution subsidiaries
operate 1,246,000 km of low and medium voltage overhead and underground
electricity lines and around 100,000 km of high and very high voltage
networks. The Group is involved in supplying energy and services to more than
38 million customers around the world, including more than 28 million in
France. The Group generated consolidated sales of euro 59.6 billion, or $76.3
billion, in 2007, of which 44% originated in Europe excluding France. EDF is
listed on the NYSE-Euronext Paris stock exchange as one of the largest market
cap companies.
SOURCE Electricite de France S.A. ("EDF")
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