Section 16

Question 1

on September 18, 2008, who what and how much?

Answer 1

Constellation Energy and MidAmerican were going to merge for $4.6Bn

Question 2

On December 3rd, 2008…?

Answer 2

Constellation received unsolicited bid from EDF offering $52 a share

Question 3

On December 17th, 2008…?

Answer 3

Constellation and MidAmerican terminate deal and Constellation pays $593M termination fee. Constellation and EDF enters definitive investment agreement

Question 4

what were constellation’s motives?

Answer 4

disturbance theory: market uncertainty led to liquidity crisis; commodity price volatility

Question 5

explain the commodity price volatility that affected constellation

Answer 5

out of the money futures contracts required additional margin payments/larger up front collateral payments

Question 6

On Dec 7-8 what happened to Constellation?

Answer 6

collateral requirements increased from $485.3M to $1.45Bn; liquidity position declined by $1.5Bn

Question 7

what exacerbated liquidity issues for constellation?

Answer 7

expansion of energy trading business; credit downgrade; broad market contraction

Question 8

outline some of the termination agreement’s highlights:

Answer 8

49% ownership by EDF for $4.5Bn; $52p/sh offer is 96% above MidAmerican offer at $26.50

Question 9

Describe the liquidity provision within Constellation Deal

Answer 9

EDF’s immediate $1Bn cash infusion replaced capital MidAmerican provided; EDF offers Constellation 2 year put option to sell EDF $2Bn worth of non-nuclear generation assets; EDF sets up $600M liquidity facility to expire once regulatory approvals related to put option were recieved

Question 10

Summarize transaction:

Answer 10

Constellation was driven by liquidity crisis; MidAmerican by attractive valuation and increased market control; deal terminated because EDF made better offer