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EDF May Challenge Constellation on Power Plant Option, BofA Says

Electricite de France SA, the world’s biggest operator of nuclear reactors, may mount a legal challenge should Constellation Energy Group Inc. demand the Paris-based company pay $2 billion for U.S. power plants under a 2008 agreement, Bank of America Merrill Lynch analysts said.

Constellation “has the contractual right” expiring at year-end to sell non-nuclear plants to EDF, Lawrence McDonnell, a spokesman for the Baltimore-based utility owner said. No decision has been made whether to exercise the so-called “put” option, part of a 2008 agreement in which EDF paid $4.5 billion for a half stake in the U.S. company’s reactors, he said. The deal kept EDF’s nuclear foothold in the U.S., thwarting a takeover by Warren Buffett’s MidAmerican Energy Holdings Co.

EDF would look for new U.S. partners to build reactors should arrangements with Constellation collapse, according to the Oct. 4 note by analyst Ameet Thakkar, citing an analyst lunch with EDF Group Senior Executive Vice President of Finance Thomas Piquemal.

“EDF believes it has the means to mount a legal challenge to CEG should it exercise the sale option based on the original intent of the agreement,” Thakkar said.

Weighing on both companies is a delay by the Energy Department in Washington in awarding what will probably be the last federal loan guarantee for a new nuclear plant authorized by Congress. Both say the guarantee is crucial to their first project, which would use European-designed reactors.

Should Constellation exercise the $2 billion option, EDF would be willing to sell the reactor stake for an “adequate” offer and divest its 8.5 percent stake in the Baltimore-based company, Thakkar said. EDF is Constellation’s largest shareholder.

‘Necessary Hurdle’

Constellation’s McDonnell wouldn’t comment on whether the companies are discussing the put option, nor would Carole Trivi, an EDF spokeswoman.

The loan guarantee is a “necessary hurdle” for the partners’ first project, expansion of a Maryland nuclear plant, Chief Executive Officer Mayo Shattuck told investors July 28. The company had expected a conditional loan commitment in this year’s first half, well before it had to decide on whether to exercise its so-called “put” option to EDF, he said.

Constellation is considering “collectively” its overall partnerships with EDF and right to sell the assets, Chief Financial Officer Jonathan Thayer said at a Sept. 29 investor conference.

“These things can tend to get contentious,” he said. “There is an optimal outcome that addresses all of those stakeholders and shame on us if we don’t get there.”

June Meeting

The option wasn’t discussed at a June meeting between EDF Chief Executive Officer Henri Proglio and Constellation senior management, Thakkar wrote. Bank of America has a neutral rating on Constellation stock.

“We think this process will continue to evolve over the next few weeks,” Thakkar wrote.

Now Constellation’s largest shareholder, EDF would view a demand that it buy the additional U.S. plants as a hostile move jeopardizing the nuclear partnership, people familiar with the situation said last month.

EDF countered, saying it needed to protect the American reactor joint venture, UniStar Nuclear LLC.

EDF reported a 47 percent drop in first-half profit and took a provision of 1.1 billion euros ($1.47 billion) related to its holding in Constellation. Based in Paris, EDF owns 8.4 percent of Constellation shares and has a seat on the board.

As well as its half of Constellation’s existing nuclear business, EDF holds 50 percent of UniStar Nuclear Energy LLC. UniStar is seeking to develop the Calvert Cliffs reactor. EDF’s Piquemal said in July the utility retains its “ambition” to pursue the Maryland reactor project.

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