EDF Won't Make Constellation Bid; Credit Crisis Thwarts Deals

By Tara Patel and Jim Polson

Oct. 16 (Bloomberg) -- Electricite de France SA, the world's biggest operator of nuclear reactors, backed out of a takeover battle for Constellation Energy Group Inc. as the worst credit crisis since the Great Depression thwarted dealmaking.

Constellation shares fell 6 percent in New York after the prospect of a bidding war evaporated between EDF and Warren Buffett's MidAmerican Energy Holdings Co., which offered $4.7 billion for the Baltimore-based power company last month. Rio Tinto Group yesterday also cited market turmoil for possibly delaying $10 billion of asset sales.

The global lending freeze is blocking acquisitions. Rio is reviewing its spending and project costs, Xstrata Plc this month abandoned an $8.7 billion hostile bid for platinum producer Lonmin Plc and Sterlite Industries (India) Ltd., a unit of Vedanta Resources Plc, shelved its $2.6 billion purchase of Asarco LLC.

``It's a very, very difficult market to float any kind of debt securities, here or in Europe,'' Gregory Phelps, who manages $2.5 billion at MFC Global Investment Management in Boston, including preferred shares of Constellation, said in an interview.

EDF, which has a 9.5 percent stake in Constellation, said it will work with several U.S. partners to develop at least four new-generation reactors there, according to a statement.

`Difficult' Market

The French utility said it was pulling out because of the ``current state of financial markets and in particular the difficult credit market for corporates.'' U.S. stocks yesterday plunged the most since the crash of 1987.

It joins Waste Management Inc., the largest U.S. trash hauler, which earlier this week withdrew a $6.73 billion offer for Republic Services Inc., saying in a statement that ``given the current state of the financial markets, we believe that it would not be prudent to continue to pursue the acquisition.''

The value of takeovers announced this year fell 30 percent to $2.3 trillion as of Sept. 30, according to data compiled by Bloomberg.

EDF's $6.2 billion offer last month to acquire Constellation with buyout firms KKR & Co. and TPG Capital LP for $6.2 billion, 32 percent more than MidAmerican's bid, was rebuffed by Constellation, which described it as inadequate.

KKR won't comment on EDF's statement yesterday, spokeswoman Ruth Pachman said in an interview.

Joint Venture

``It would be difficult to put a deal together with a U.S. leveraged buyout firm like KKR in the current debt market,'' said Angie Storozynski, an analyst at Macquarie Capital USA Ltd. in New York, who rates Constellation shares at ``neutral'' and owns none. ``It would be all the more difficult because KKR would have to be the majority partner.''

The French power producer, whose market value is 74 billion euros ($100 billion), and Constellation last year created a 50-50 joint venture called Unistar Nuclear Energy LLC to develop U.S. nuclear installations. Constellation owns nuclear generators in Maryland and New York state.

``I want a partnership in the U.S. and I won't rule out any option,'' EDF Chief Executive Officer Pierre Gadonneix said last week in an interview in Paris. ``I think in the U.S. you have to have an American partner. It's not the law that says this, it's my conviction.''

EDF, which is targeting four nations for nuclear energy investment, last month agreed to pay 12.5 billion pounds ($22 billion) to buy British Energy Group Plc.

Constellation declined $1.57 to $24.05 in New York, below Buffett's offer of $26.50 a share. The S&P 500 fell 9 percent.

MidAmerican and Constellation said on Oct. 14 they had asked the Federal Energy Regulatory Commission to approve the takeover by Jan. 15. Approval will also be needed from other federal regulators, as well as utility regulators in Maryland.

The deal will ensure that Constellation ``will continue to operate its facilities safely and reliably under the guidance of a U.S.-based owner,'' the two said in a joint statement.

``We're very pleased with the UniStar joint venture,'' MidAmerican spokeswoman Ann Thelen said.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Tara Patel in London at tpatel2@bloomberg.net