EDF reaches settlement over proposed Constellation merger

Exelon Corp. and Constellation Energy Group have won over French utility EDF, which agreed to drop its opposition to the proposed merger between the two energy giants after reaching a settlement, the companies announced Tuesday.

While EDF's staunch opposition was never expected to derail the deal, the settlement puts another ally in the deal's corner, according to analysts and investors.

For EDF, the settlement alleviates fears that it would lose autonomy over its nuclear joint venture with Constellation if Exelon succeeds in buying the Baltimore energy company. EDF owns nearly half of Constellation's nuclear plants in New York and Maryland, including Calvert Cliffs in Southern Maryland.

"When companies are going through mergers and acquisitions, it's always good to have all the parties on the same page," Morningstar analyst Travis Miller said Tuesday.

Miller called EDF's settlement a "positive step" for the proposed merger but said he didn't expect it to have a "material impact" on the Maryland Public Service Commission, which has the power to veto it. A decision is expected by Feb. 17.

In contrast, a separate settlement between the two power companies and Gov. Martin O'Malley was seen as a boon for the merger's prospects. Exelon and Constellation agreed last month to $1 billion in concessions to gain O'Malley's support for the $7.9 billion buyout. The companies promised to provide considerable renewable energy generation in Maryland, make significant investment in offshore wind development, and increase aid to low-income electricity customers.

EDF had been a vocal critic of the proposed merger. As Constellation's second-largest shareholder, it voted against the deal, though its 7.2 percent stake was not enough to sway stockholder approval.

And EDF played an active role during a regulatory review before the Maryland Public Service Commission, where its representatives grilled Constellation and Exelon's top executives. EDF also opposed the companies' settlement with the governor and the state.

Meanwhile, Exelon argued that the proposed merger would not harm EDF. Talks between the two companies over EDF's concerns broke down in September.

When asked what changes led to the agreement, Exelon spokeswoman Judith Rader said in a statement that Tuesday's settlement was "based on terms to which Exelon and Constellation have always been willing to commit.

"So, when EDF came to us recently seeking a settlement on such terms, naturally we agreed to it," Rader said.

But EDF said in a one-sentence statement Tuesday that "Exelon's characterization of the discussions is simply inaccurate."

According to documents filed Tuesday with the Securities and Exchange Commission, the settlement calls for Exelon to take no action that would "infringe on the operational autonomy" of Constellation Energy Nuclear Group without EDF's consent.

No money was exchanged as part of the settlement.

Thomas Piquemal, EDF Group's chief financial officer and head of North America, said in a statement that the company was "pleased to have reached an agreement with Exelon that protects CENG's operational independence moving forward."

Other major settlement terms provide that EDF has the right to appoint the joint venture's chief financial officer; that Exelon agrees not to hire EDF or CENG employees without EDF's consent for two years after the merger's closing; and that most of CENG's executive officers would not receive any post-merger compensation.

EDF received assurances that Exelon would not favor its existing nuclear fleet over the plants it would share with EDF.

The joint venture will remain based in Baltimore. It employs 1,100 employees in Maryland, including 200 in the city.

Exelon President and Chief Operating Officer Christopher M. Crane said in a statement that the settlement with EDF "reflects additional positive momentum toward the timely consummation of our merger with Constellation."

The proposed deal still requires approval from the Maryland Public Service Commission, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.


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