MW Constellation stock soared on AI hopes. Now it's using those gains to buy Calpine in $16 billion deal.

By Steve Goldstein

Baltimore-based nuclear company would have presence in 40 states if deal completes

Constellation Energy - the electricity provider whose stock has doubled over the last year on hopes it'll help meet the voracious energy demand from artificial intelligence - on Friday reached a $16 billion deal to buy Calpine.

Terms call for Constellation $(CEG)$ to pay $16.4 billion, consisting of 50 million shares of its stock as well as $4.5 billion in cash. Constellation will also assume $12.7 billion of Calpine's debt.

"By combining Constellation's unmatched expertise in zero-emission nuclear energy with Calpine's industry-leading, best-in-class, low-carbon natural gas and geothermal generation fleets, we will be able to offer the broadest array of energy products and services available in the industry," said Constellation CEO Joe Dominguez in a statement.

Constellation shares jumped 12% in premarket trade. The company's stock has surged over the last year, as it reached a deal to restart the Three Mile Island nuclear plant to provide Microsoft with power.

Constellation said it's already the top clean energy producer in the U.S., and buying Calpine gives it the Geysers facility in Northern California, which is the largest geothermal generator in the U.S.

UBS analyst William Appicelli, who wrote a report based on speculation of the tie-up before deal terms were announced, said the benefit of the deal for Constellation is that gives them a "full dispatch stack of assets" to suit it for a variety of market conditions. The drawback, though, is it turns Constellation into a more conventional company with a large fossil generation footprint. "The injection of a large gas fleet could impair the quality of the multiple," he said.

Constellation said the deal will lift adjusted earnings per share by more than 20% in 2026, and at least $2 per share of EPS accretion in future years. Constellation said it remains committed to an investment-grade balance sheet and expected its current ratings to be affirmed by S&P and Moody's.

Privately held Calpine is held by owners including Bridgepoint's (UK:BPT) ECP, the Canada Pension Plan Investments and Access Industries, which have agreed to an 18-month lock-up of Constellation stock. ECP led the $17 billion acquisition, including debt, of Calpine in 2018.

The companies expect the deal to close within 12 months. The combined company will be headquartered in Constellation's home city of Baltimore but will remain a "significant presence" in Houston.

Lazard and JPMorgan advised Constellation while Evercore, Morgan Stanley, Goldman Sachs and Barclays advised Calpine as well as ECP.

-Steve Goldstein

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January 10, 2025 09:25 ET (14:25 GMT)

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