Friday, December 5, 2008

EFDI - The complete proposal

Term sheet from CGI SEC Filing:
On December 2, 2008, Constellation Energy Group, Inc. (“Constellation Energy”) received an unsolicited proposal from Électricité de France (“EDF”). The main components of EDF’s proposal are:

EDF would purchase a 50% ownership interest in the nuclear generation and operation business of Constellation Energy (excluding Constellation Energy’s existing interest in the UniStar joint venture) for $4.5 billion, subject to certain adjustments;

EDF would make an immediate $1 billion cash investment in Constellation Energy in the form of nonconvertible cumulative preferred stock, which subsequently would be credited against the $4.5 billion purchase price (with EDF surrendering the preferred stock to Constellation Energy as partial payment); and

EDF would provide Constellation Energy with additional liquidity by entering into an asset put option pursuant to which Constellation Energy could, at its option, prior to EDF’s acquisition of the 50% interest in Constellation Energy’s nuclear generation and operation business, sell to EDF non-nuclear generation assets having an aggregate value of up to $2 billion.

This is the complete deal and below is the valuation based on EDFI's proposal:
Annex A
Implied Constellation common stock valuation
Based on publicly available information, EDFI and its advisors have calculated the implied value of EDFI’s offer to the Company’s stockholders. Based on the calculation presented below, EDFI’s offer represents the equivalent of an offer of $52 per share of Constellation common stock.
The implied valuation of the Constellation common stock is based on a sum-of-the-parts valuation of Constellation’s individual business segments and calculates an implied value per Constellation common stock taking into account adjustments for the EDFI transaction. A separate, intrinsic valuation analysis of Constellation’s business segments using independent projections for the generation assets and projections for BGE that reflect the current rate environment resulted in a valuation range of $45 to $60 per share and confirmed the sum-of-the-parts valuation approach.

Valuation of Constellation’s business segments
$ billions

Valuation of non-nuclear generation assets
• 6,595 MW of non-nuclear power generation assets
• Based on individual $/kw multiples applied to the net owned MW capacity of each of Constellation’s non-nuclear power generation assets
• Implied average multiple of $862/kw, adjusted for pro rata share of negative hedge value15.7
Valuation of 50% of existing nuclear generation assets
• 3,869 MW nuclear power generation assets
• Based on individual $/kw multiples applied to the net owned MW capacity of Calvert Cliffs, Nine Mile Point and Ginna Station
• Implied average multiple of $2,234/kw, adjusted for pro rata share of negative hedge value 14.3
Valuation of BGE

• Based on 7.0 times estimated 2009E EBITDA of $593 million, based on equity research
• EBITDA estimate based on equity research estimate
• Multiple selected based on current trading levels of comparable transmission and distribution companies 4.2

Valuation of Global Commodities and Customer Supply
• Net derivative position disclosed in Constellation’s Q3 2008 investor presentation
• Assumes no additional value from ongoing business 0.3
Valuation of 50% interest in Unistar JV• Based on equity research estimate 0.3
Corporate overhead
• Based on 8.0 times estimated, additional corporate costs of $15 million based on equity research estimate (0.1 )
Total firm value before net debt and transaction adjustments (A) 14.7

Net debt deduction from firm value (before transaction adjustments)
• $6.7 billion of net debt at September 30, 2008 reported by Constellation (including $1 billion MidAmerican senior note)
• $0.2 billion of non-MidAmerican preferred stock and minority interests (6.9 )
MidAmerican transaction termination related adjustments
• Payment of $175 million MidAmerican termination fee
• Payment of $420 million to MidAmerican for shares in excess of 10%, for which it may not have received regulatory approvals by the time the MidAmerican merger agreement is terminated (0.6 )
EDFI transaction related adjustments
• Receipt of $4.5 billion of gross sale proceeds from EDFI
• Net proceeds of $3.2 billion, assuming a capital gains tax rate of 38.5% and an estimated tax basis of 25% of the sale value 3.2
Total net debt and transaction adjustments (B) (4.3 )
Implied total equity value (C) = (A) — (B) 10.4  
Implied value per Constellation common stock ($/share)
• Assumes 180 million diluted shares outstanding plus 19.9 million shares issued to MidAmerican upon conversion of the preferred stock $ 52
Implied value per Constellation common stock incl. potential synergies
• Assumes estimated $100 million per annum of potential nuclear JV synergies, capitalized at 6 times, shared equally between the partners $ 55
Consistent with to slightly conservative when compared to trading multiples for generation dominated companies that are investment grade rated and not going through liquidity-related or other extraordinary events.

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