Constellation nuclear partner wants assurances in Exelon merger

Mergers, Acquisitions and TakeoversRestructuring and RecapitalizationFinanceNuclear PowerShareholdersT. Rowe PriceJoint Ventures

EDF Group, Constellation Energy's second-largest shareholder and a partner in its nuclear business, is threatening to vote against the company's plans to sell itself to Exelon Corp. after talks between them broke down last week, according to sources familiar with the discussions.

Officials with EDF, a French company that owns nearly half of Constellation's nuclear power plants, are concerned the company will lose autonomy as a smaller part of Chicago-based Exelon, according to the sources.

Unless that concern and other matters are resolved, the sources said, EDF could vote against the merger.

The development is the latest challenge to the $7.9 billion merger announced in April. The Maryland Energy Administration and the Office of People's Counsel — the state's consumer advocate — say they will oppose the deal unless Exelon and Constellation provide greater assurance that it would not harm Maryland customers.

Analysts said it makes sense for EDF to use its vote as a bargaining chip to get its concerns addressed.

"I think it would make sense that as a large generator in Maryland and as co-owners of Calvert Cliffs that they would try to make sure that the merger would not adversely affect them," said Paul Patterson, an analyst with Glenrock Associates in New York.

The Maryland Public Service Commission, the state's energy regulator, will begin hearings Oct. 31 to examine the deal.

A spokeswoman for Exelon confirmed Monday that the company has had talks with EDF and others since the merger was announced in April.

"Unfortunately, EDF has made several demands which we have been unable to accommodate," said the spokeswoman, Judith Rader. "It appears to us that EDF's objective is to recoup financial losses they incurred in earlier transactions. Their approval is not required for the merger to be successful."

EDF holds a 7.2 percent stake in Constellation.

Kelly Sullivan, a spokeswoman for EDF, declined to comment Monday. A spokesman for Baltimore-based Constellation also declined to comment.

Baltimore-based T. Rowe Price is the largest shareholder in Constellation, with a 7.3 percent stake. T. Rowe Price also declined to comment.

Constellation sold 49.99 percent of its nuclear power business to EDF in 2008 amid serious financial troubles. The deal allowed Constellation to remain an independent company headquartered in Baltimore.

Under the nuclear joint venture, EDF and Constellation own the Calvert Cliffs nuclear plant in Southern Maryland and two others in upstate New York.

The French company believes it is important to maintain control of the business, particularly after the nuclear disaster in Japan earlier this year, according to the sources.. EDF does not want to be relegated to a passive role while it still has legal responsibility over the plants owned and managed by the joint venture, the sources said.

Constellation Energy Nuclear Group, which is also based in Baltimore, now operates independently through a 10-member board to which EDF and Constellation each appoint five members. A chairman named by Constellation holds a tiebreaking vote on matters related to safety, security and reliability.

EDF is worried about its position within Exelon, the sources said. The Chicago energy giant already oversees a large fleet of nuclear plants, but would own only 50.01 percent of Constellation's nuclear unit. EDF wants assurances that Exelon would not favor its existing fleet over the plants that it would share with EDF, according to the sources.

Travis Miller, an analyst for Morningstar, said analysts have been wondering about EDF's role under the new company since the merger was announced.

"EDF has a big stake in Constellation and a key stake in one of the key assets of the company," he said. "We're not surprised that Exelon would have to woo EDF to try to push the deal through."

If the deal failed, EDF would maintain its stake in Constellation and its near-half-ownership of the nuclear business, with its earning potential.

"I don't think they'd be particularly concerned about the deal failing," Miller said. "In some respects they might prefer the deal failing."

hanah.cho@baltsun.com

liz.kay@baltsun.com

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