The Canada Pension Plan Investment Board is selling its stake in Texas-based electricity producer Calpine Corp. for cash and stock, reaping a significant windfall in a deal that will see Constellation Energy Corp. CEG-Q acquire Calpine for US$16.4-billion.
The proceeds to CPPIB from selling its 15.75-per-cent stake are expected to be US$700-million in cash and US$1.9-billion in shares of Baltimore-based Constellation. That marks a substantial return on CPPIB’s initial US$750-million investment in Calpine in 2018, which later increased to US$900-million through a follow-on investment. At the time, CPPIB and investment companies Access Industries and Energy Capital Partners Management LP took Calpine private for US$5.6-billion, believing it was undervalued.
Constellation will pay a total of US$4.5-billion in cash and 50 million shares of its stock valued at US$237.98 each, for a total equity value of US$11.9-billion. Constellation will also assume about US$12.7-billion of Calpine’s debt.
On paper, CPPIB’s gain on its investment increased further on Friday when Constellation’s share price shot up 25.2 per cent to close at US$305.19 on the Nasdaq stock exchange.
Constellation said the deal will make it the largest clean-energy provider in the United States. The combined company will have a bulked-up presence in Texas, as well as other key states such as California, New York State and Pennsylvania. The merger is intended to put it in a stronger position to meet growing demand for electricity in the United States, including from data centres that power cloud computing and artificial intelligence.
Bill Rogers, head of sustainable energies for CPPIB, said in a statement that the deal was “an excellent opportunity to realize strong returns for the CPP Fund,” and that the pension-fund manager is expecting growth at Constellation to further increase the value of the shares it will acquire, “enhanced by the increased scale and cash flow resulting from this combination.”
Houston-based Calpine operates 79 power plants in 22 U.S. states and one in Southern Ontario that generate power from natural gas and geothermal geyser assets. Its plants produce enough energy to power about 20 million homes. The company is also developing new green-power facilities for battery storage, carbon capture and sequestration, and geothermal and solar energy.
Since CPPIB bought its stake more than six years ago, Calpine has cut costs, paid down debt and developed new green energy and decarbonization projects. Those upgrades, combined with rising demand for energy, have “provided a favourable macro backdrop for the business,” Mr. Rogers said in an e-mail.
“Calpine serves as a good example of CPPIB’s approach to invest in companies that play a critical role in delivering affordable, reliable power while helping them progress towards the decarbonization of their portfolios,” he said.
The Canadian pension-fund manager’s ownership of Calpine has not been without headaches, however. In 2021, Hydro-Québec’s then-chief executive officer blasted CPPIB for backing Calpine in its opposition to a new power line to carry Quebec hydropower to New England.
CPPIB manages $647-billion on behalf of the Canada Pension Plan, the national retirement plan for working Canadians, which has more than 22 million contributors and beneficiaries. Its sustainable energies group had a $32.4-billion portfolio as of March 31, 2024.
The deal is expected to close in the second half of 2025 and is subject to regulatory approvals.