Constellation Energy, America’s largest nuclear plant operator, has agreed to purchase Texas-based geothermal and gas producer Calpine for $26.6 billion. This includes both cash and stocks.
The deal highlights how natural gas will likely play a role in meeting the fast-rising US demand for electricity.
CEG’s share price soared by nearly 14% during Friday’s pre-market hours.
Constellation stated that the transaction, which should close in the second half 2025, will add $2 billion annually to Constellation’s free cash flow. Together, the companies will have nearly 60 gigawatts of capacity from zero and low emission sources, such as nuclear, natural gas, and geothermal.
Joseph Dominguez said that Constellation’s chief executive, Joseph Dominguez.
We will be able offer the most comprehensive range of energy products and service available in the industry by combining Constellation’s unmatched expertise and best-in-class fleets in low-carbon geothermal and natural gas generation.
Constellation to offer data centers to Microsoft, Google and other companies
Constellation would expand its portfolio with this deal, which is one of the largest in the power sector in the country. Companies like Microsoft and Google are scrambling for energy to power data centers that run artificial intelligence services and other services.
Microsoft funded the project. Constellation committed $1.6billion to restarting the Three Mile Island nuclear power plant in Pennsylvania.
The chances of restarting old plants is limited and the new small reactors will not significantly contribute to electricity generation for many years.
Energy companies are turning more and more to natural gas despite its high emissions of methane and carbon dioxide, which are key contributors to global warming.
The New York Times reported that Andrew Gillick, a strategist for Enverus Analytics, said, “It will be difficult for utilities to provide the electricity these data centers require without gas.”
Goldman Sachs projects that data center power requirements will grow by 15% per year through 2030.
What CEG investors must know
Nuclear energy stocks are at a record high in 2024, thanks to the scramble by Big Tech to find electricity for its artificial intelligence ambitions.
Constellation Energy shares have more than doubled over the past year and increased by 440% in five years.
Constellation released its latest earnings report for the quarter that ended September 30. The company reported a revenue of $6.55 Billion and a profit of $1.2 Billion.
Comparatively, the company had a net income of $731 million and a revenue of 6.11 billion dollars last year.
Analysts say that Constellation will be able to reinvest the $2 billion in free cash flow generated by the deal.
Some analysts believe that the acquisition of Calpine by Constellation could also expose Constellation’s commodity prices to fluctuations.
Investors highly regard CEG for its heavy tilt towards stable, lower-risk, nuclear power generation which accounts for almost 90% of its output, Enverus Intelligence Research Analyst Scott Wilmot said late Thursday in a statement.
Calpine’s portfolio, which is primarily gas, has a significantly higher commodity risk. The acquisition price may seem fair, but the change in CEG’s profile of risk could result in a higher premium for risk being priced in. This could put downward pressure on the stock.
This post Constellation Energy to Buy Calpine: What CEG Investors Should Know may be modified as new developments unfold.
