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EDF Proposes to Acquire 50% of Constellation Energy's Nuclear Generation and Operation Business for $4.5 Billion

Posted on: Wednesday, 3 December 2008, 00:00 CST

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")

Source: PR Newswire

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