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Constellation Energy has agreed to buy rival Calpine in a nearly $27bn deal, uniting two of the US’s largest electricity generators as demand for power to fuel the artificial intelligence revolution is projected to surge.
The tie-up, one of the largest deals in the US power sector, will create an industry behemoth with a customer base of about 2.5mn, according to a statement released by the two companies on Friday.
Constellation will pay $16.4bn for Calpine’s equity through a combination of $4.5bn in cash and 50mn of its own shares, and will also assume the target’s $12.7bn debt, for an enterprise value of $26.6bn. Shares in Constellation closed more than 25 per cent higher on Friday, giving the group a market capitalisation of about $95bn.
Constellation chief executive Joe Dominguez said that by combining his company’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”.
The US electricity system is grappling with a historic rise in power demand after two decades of negligible growth, partly because of the rapid growth of data centres that power everything from AI tools to ecommerce sites. Consulting firm ICF expects the country’s power consumption to grow nearly 20 per cent by 2033.
Expectations of surging power demand have been a boon for cheap natural gas-fired generation, which unlike solar and wind, is available around the clock.
Expectations for the rise in power demand have helped Constellation shares more than double over the past year. Share prices in rival power generators Vistra and NRG have also advanced.
Constellation operates the largest fleet of conventional nuclear reactors in the US. Last year it announced it planned to reopen the Three Mile Island nuclear plant in Pennsylvania, the site of one of the most severe nuclear power accidents in the US, with funding from Microsoft.
Calpine operates a fleet of 78 gas plants and other energy facilities across the US, which generate enough electricity to power about 27mn homes. The company primarily operates in Texas and California, where Constellation said it is aiming to expand its footprint.
The cash and share deal, which is expected to close within 12 months, is set to deliver a large windfall for private equity investors Energy Capital Partners, CPP Investments and Access Industries, which bought Calpine for $17bn including debt in 2017. The deal, a more than four times return on an original equity investment of about $5.5bn, makes Calpine one of the largest private equity exits ever, according to Financial Times analysis. Representatives for ECP and CPP declined to comment.
Analysts expect the deal could spark greater consolidation in the power sector. On Thursday private equity group KKR and PSP Investments, one of Canada’s largest pension investors, agreed to acquire a 19.9 per cent interest in American Electric Power’s Ohio and Indiana & Michigan transmission companies for $2.82bn, through a 50/50 strategic partnership.
Additional reporting by Antoine Gara
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