EDF May Make New Constellation Energy Bid, Chief Gadonneix Says

By Tara Patel

Oct. 9 (Bloomberg) -- Electricite de France SA, the world's biggest operator of nuclear reactors, may make a new takeover offer for Constellation Energy Group Inc. with potential partners including buyout firm KKR & Co.

Constellation last month rejected a $6.2 billion bid involving EDF and agreed to be bought by Warren Buffett's MidAmerican Energy Holdings Co. for $4.7 billion. EDF has a 9.5 percent stake in Constellation and is the largest shareholder.

EDF plans to win licenses to operate new-generation U.S. reactors through an alliance with Constellation, the Baltimore- based power company that owns nuclear generators in Maryland and New York state. Falling stock markets and tightening credit are unlikely to prevent EDF's effort, EDF Chief Executive Officer Pierre Gadonneix said in an interview.

``We are in talks with a number of industrial and financial partners, in particular KKR,'' Gadonneix said yesterday at his office in western Paris. ``Among the partners, some are proposing a counter offer, but this isn't the only scenario.''

EDF, which operates 58 reactors in France that generate 77 percent of the country's power, is targeting four nations for nuclear energy investment.

``I want a partnership in the U.S. and I won't rule out any option,'' Gadonneix said. ``I think in the U.S. you have to have an American partner. It's not the law that says this, it's my conviction.''

EDF's consideration of a bid comes as the French utility presses ahead with investing 35 billion euros ($48 billion) in the three years through 2010, financed by cash flow instead of borrowings, even as the global credit crunch forces companies to rein in spending.

Constellation Bid

EDF, KKR and TPG Capital LP last month bid together for Constellation. TPG is not participating in talks on any future offer, two people familiar with the discussions said, declining to be identified because the discussions are private. A TPG spokesman declined to comment.


``EDF is hungry for it,'' said Jim Halloran, who helps manage $34 billion at National City Private Client Group in Cleveland, including Constellation shares. ``They'll wait until the credit markets show some semblance of normality and in the meantime, they can work on multiple, innovative paths to get a deal done.''

Buffett probably doesn't want to invest in the reactors EDF wants to build with Constellation, Halloran said. Any deal should be structured to limit U.S. regulatory hurdles, he said.

Electricite de France, whose market value is 80 billion euros, and Constellation last year created a 50-50 joint venture called Unistar Nuclear Energy LLC to develop U.S. nuclear installations.

Nuclear Design

``MidAmerican is very pleased with the UniStar joint venture,'' spokeswoman Ann Thelen said today in a telephone interview. The venture yesterday announced it hired Areva SA and Bechtel Group Inc. to complete a detailed design for a new reactor at Constellation's Calvert Cliffs nuclear station.

Constellation spokesman Robert Gould didn't immediately return telephone calls and KKR spokesman Mark Semer declined to comment.

EDF agreed last month to pay 12.5 billion pounds ($23 billion) to buy British Energy Group Plc.

EDF's 35 billion-euro investment program excludes the British Energy acquisition and new spending in the U.S., said Gadonneix, 65. Most of the investment will be made in France, where the costs of running and maintaining reactors have risen, crimping profit this year.

``There are sectors that must stay on course,'' Gadonneix said, in a reference to the credit crunch. ``Whatever happens, the challenges for the energy industry will remain.''

Shares Drop

EDF fell by 3.5 percent yesterday in Paris trading to 43.71 euros, marking a 46 percent drop this year. E.ON AG, Germany's biggest power company, tumbled 35 percent in Frankfurt trading this year.

EDF is building France's first new-generation European Pressurized Reactor, or EPR, in Flamanville in Normandy. French regulators temporarily halted construction this year, citing concerns over concrete reinforcement and supervision by contractors.

The 1,600 megawatt EPR was developed by Paris-based Areva SA, the world's biggest maker of nuclear reactors. EDF is also planning to build four of the models in the U.K., with the first scheduled to come online in 2017, and is targeting South Africa.

A decision by that country on whether it will ask Areva or Toshiba Corp.'s Westinghouse Electric Co. to build a nuclear power plant ``could be pushed back a few months'' because of a change in government, Gadonneix said.

Centrica Talks

``Only big operators with solid finances can participate in nuclear renewal,'' he said. ``The financial stakes are such that no smaller company, including British Energy or U.S. energy companies, can do this.''

In the U.K., EDF plans to give Centrica Plc the option to buy a 25 percent stake in British Energy.

``We don't have an agreement with Centrica, we have intentions, but nothing in writing,'' Gadonneix said. ``There are many groups interested. We are in advanced talks with Centrica. Their motivation and interest hasn't changed.''

To contact the reporter on this story: Tara Patel in Paris on tpatel2@bloomberg.net