EDF's Expensive U.S. Nuclear Option

From the Wall Street Journal:

Big French companies have a poor investment record in the U.S.: think Crédit Lyonnais in financial services, the former Suez in water and Vivendi in entertainment.

Will Electricité de France join the hall of shame? That partly depends on the outcome of a tricky negotiation with Constellation Energy Group, which wants to exercise a $2 billion put option that would require its French nuclear joint-venture partner to buy 11 coal-fired power stations. With EDF threatening to walk away from the U.S. market, its international strategy could unravel.

EDF paid a big price to buy its foothold in the U.S. Constrained by foreign-ownership rules, it paid $4.5 billion for half of Constellation's nuclear business in 2008, outbidding Warren Buffett's MidAmerican Energy Holdings, which offered $4.7 billion for the whole company. EDF also acquired an 8.4% stake in Constellation. With Constellation in dire financial straits at the time, EDF offered a backstop financing facility in the form of the put option. Despite improved cash and credit lines valued at $3.8 billion as of June 30, Constellation wants to exercise the put before it expires at year-end.

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