Transaction Represents Implied Value for Constellation of Around
$52 Per Share, or 96% Premium to Proposed MidAmerican Transaction
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. DATASOURCE: Electricite de
France S.A. ("EDF") CONTACT: Analyst and Investor Contacts: David
Newhouse, +33.1.40.42.32.45, or Stephanie Roger-Selwan,
+33.1.40.42.18.48, ; or Press Contacts: Barrett Golden or Kelly
Sullivan or Eric Brielmann, all of Joele Frank, Wilkinson Brimmer
Katcher, +1-212-355-4449
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