Why Constellation Energy Stock Flopped on Friday
Key Points
It reached a compromise with a top regulator about a major acquisition.
It now has a clear path to its more than $16 billion buyout of Calpine.
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On Friday, one day after speculation swirled about Constellation Energy's (NASDAQ: CEG) settlement talks with the U.S. Department of Justice (DOJ), an agreement was reached between the two sides. However, many investors didn't consider it the best compromise, as they collectively sold the energy company's stock by more than 2%.
A settlement agreed
Those discussions concerned Constellation's $16 billion-plus deal to acquire peer company Calpine. The DOJ was concerned that the acquisition could stifle competition, hence the need for finding a middle ground.
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Image source: Getty Images.
Another government agency, the Federal Energy Regulatory Commission, initially approved the deal, provided that Constellation divest a quartet of Calpine electricity-generating assets in the Mid-Atlantic region.
In its settlement with the DOJ, the company has also agreed to divest two natural gas-fired facilities, one located in Pennsylvania and the other in Texas. It will also shed a minority stake in a similar Texas plant.
Constellation professed to be satisfied with the new DOJ agreement.
It quoted CEO Joe Dominguez as saying that "We are very pleased to reach a settlement that allows us to bring together two magnificent companies to create a new Constellation with unprecedented scale, talent and capability to better serve our customers and communities while building the foundation for America's next great era of growth and innovation."
The birth of a giant
While that may be the case, the combined Constellation/Calpine business will have slightly fewer assets than many folks previously thought. Still, it will be a powerhouse in the energy sector, and given its sheer size and reach, it'll be a compelling investment regardless. Even this mild sell-off, in my opinion, was unjustified on that basis.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy. The Motley Fool has a disclosure policy.
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