Tuesday, December 9, 2008

CEG is Talking to EDF -- Facilitating but not Encouraging

Today was a nice win for the CEG's badly mistreated shareholders.

The Stock went X Dividend, and every 47 cents counts these days.

Also, the board authorized discussions with EDF.  This is an interesting development, since it was clear from the proxy that CEG's board is limited regarding the extent to which it can "initiate, solicit, facilitate, or encourage merger proposals."  It isn't initiating or soliciting merger proposals, but it is facilitating one by authorizing discussions. 

The Mid American proposal must also get a shareholder vote before the deal can be terminated by CEG.  Upon termination, Mid American gets the $275 breakup fee and 16.7% of the stock (via issuing another 20%) -- and it sounds like Mid American can only keep 10%, requiring the additional shares to be paid out in cash.  Giving Mid American 10% of the stock and over 1/2 billion in cash.

But, it looks like it is Mid American can now consider the EDF proposal and if it can work something out, terminate the Mid American agreement.  Mid American, for its part, sounds like they *could* argue that the discussions allow it to terminate with prejudice and demand the cash/stock.  It isn't obvious from a casual reading exactly how an alternative proposal can be handled without Mid American having the right to terminate, we can see where this is going in practice.

That is, CEG is going to discuss EDF's proposal.  They will then either deem it a superior proposal and change their recommendation or not.  If they change their recommendation and Mid American insists on a vote, then if it is voted down, the deal is terminated.

In practice, the CEG board really calls the shots, since they should be able to get the votes to approve whatever they recommend.  

Here's the press release:

Constellation Energy Board Authorizes Discussions With Électricité de France (EDF)

BALTIMORE, Dec 08, 2008 (BUSINESS WIRE) -- Constellation Energy (NYSE: CEG) today announced that its Board of Directors has authorized the company to begin immediate discussions and exchange of information with Électricité de France (EDF) related to EDF's unsolicited proposal, which was received on Dec. 2, 2008.

Constellation Energy said the decision to begin discussions with EDF was made following consultation with its legal and financial advisors, and in a manner consistent with its fiduciary responsibilities to shareholders, as well as its responsibilities under its definitive merger agreement with MidAmerican Energy Holdings Company.

Constellation Energy's Board of Directors has not withdrawn, modified or qualified its recommendation that shareholders of Constellation Energy vote in favor of the merger with MidAmerican. The special meeting of shareholders to vote on the merger with MidAmerican remains scheduled for 8 a.m. on Dec. 23, 2008.

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