Power generation giant Constellation Energy’s (CEG) $30 billion takeover of fellow power producer Calpine Corp. is taking shape. People familiar with the matter said that talks are in advanced stages and a deal could be announced soon. CEG shares initially slipped nearly 11% on the news but later recovered and were down 4.6% at Wednesday’s closing.
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Constellation is planning to pay for the acquisition mostly in stock, with a small cash component. The deal assumes $12 billion of debt on Calpine’s balance sheet. Privately-held Calpine operates roughly 80 facilities in 22 U.S. states and Canada. The company harnesses electricity from natural gas and geothermal resources. Meanwhile, Constellation generates power from nuclear, natural gas, renewables, and oil resources.
The Timing of Constellation-Calpine Deal Seems Right
The timing of the Constellation-Calpine deal seems just about right, with the demand for electricity expected to bolster in the coming years. The advent of AI (artificial intelligence) and data centers has amplified the need for power generation. A Reuters report stated that power demand from data centers is forecasted to triple in the next three years, consuming nearly 12% of the country’s electricity. CEG shares have gained 110.8% over the past year, thanks to the rapidly growing demand for electricity.
Calpine’s addition will diversify CEG’s asset base and electricity generation type. According to a Bloomberg report, the deal is expected to be highly accretive to Constellation’s EPS (earnings per share). If the talks are successful, the deal would be one of the largest to date in the U.S. power sector. Calpine’s owners, namely Energy Capital Partners, Canadian pension fund CPP Investments, and Access Industries, bought the company for $17 billion in 2017. Constellation’s acquisition is expected to repay their investments handsomely.
Is Constellation Energy Stock a Good Buy?
Analysts remain divided on Constellation Energy Group’s stock trajectory. On TipRanks, CEG stock has a Moderate Buy consensus rating based on nine Buys and five Hold ratings. Also, the average Constellation Energy Group price target of $281.92 implies 15.6% upside potential from current levels.
