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Buffett Firm Buys Constellation Energy

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The Associated Press

Published: September 19, 2008

The nation's largest wholesale power seller, Constellation Energy Group, whose stock has collapsed amid worries about liquidity and accounting issues, agreed on Thursday to be bought by a unit of Warren Buffett's Berkshire Hathaway Inc. for $4.7 billion.

Des Moines, Iowa-based MidAmerican Energy Holdings Co. will pay $26.50 a share in cash for the Baltimore-based utility, well off its 52-week high of $107.97 reached Jan. 8. The shares had traded as high as $67.87 last week before hitting a low of $13 Tuesday.

The shares closed down 57 cents, or 2.3 percent, to $24.20 in trading Thursday.

The companies plan to sign a definitive merger agreement by the end of business Friday. After the deal is signed, Constellation will receive $1 billion by issuing preferred equity to MidAmerican, the companies said.

The boards of both companies have approved the deal. It still requires the approval of shareholders and regulators.

The announcement comes just a day after Constellation said it had retained Morgan Stanley and UBS to act in an advisory capacity to evaluate "strategic alternatives," language often used by companies seeking a buyer, merger or acquisition.

On Wednesday, Standard & Poor's placed the utility's investment-grade "BBB" debt ratings on Credit Watch "developing," meaning they may be revised higher or lower, or maintained.

Constellation Energy stock fell 16 percent Aug. 12 after analysts raised questions about some aspects of the company's accounting and the implications of a credit downgrade.

In late August, Constellation Energy announced its intention to sell its upstream gas assets.

Buffett also reportedly had been in rescue talks with insurer American International Group Inc. before its Federal Reserve bailout.

"MidAmerican has been a wonderful steward of its energy assets and the acquisition of Constellation Energy, when completed, will prove beneficial to all constituents," Buffett said in a statement.

Mayo Shattuck III, chairman, president and chief executive of Constellation Energy, acknowledged the deal comes as "the financial services sector and energy commodity markets have witnessed unprecedented volatility."

MidAmerican's deal ends speculation that French nuclear power giant Electricite de France SA would make an offer for Constellation. EDF, which had considered raising its stake in Constellation, said Thursday it ruled out such a move because "all the conditions are not met to do so."

In its statement, EDF said it is keeping its options open and intends to be a part of what it calls the nuclear revival in the United States by investing in building and operating next-generation nuclear plants. Last year, EDF and Constellation set up a 50-50 joint venture, Unistar Nuclear, with the aim of building four next-generation EPR nuclear reactors.

MidAmerican bills itself as a global leader in energy production from sources including natural gas, hydroelectric, nuclear, coal, geothermal and wind. The company, which says it has more than $12 billion in annual revenue, distributes energy in the U.S. and British consumer markets, with about 6.7 million customers. MidAmerican subsidiaries include California utility PacifiCorp.
Constellation Energy supplies electricity to large commercial and industrial customers. It also manages fuels and energy services on behalf of energy intensive industries and utilities and owns 83 generating units in the United States. The company delivers electricity and natural gas through Baltimore Gas and Electric Co.

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