EDF Defies Buffett With Constellation Nuclear Offer

By Tara Patel and Jim Polson

Dec. 3 (Bloomberg) -- Electricite de France SA, the world’s biggest operator of atomic reactors, offered to pay $4.5 billion for half of Constellation Energy Group Inc.’s nuclear business to gain generating capacity in the U.S. and thwart a rival bid from billionaire Warren Buffett.

The proposal includes a $1 billion cash investment in preferred stock and an option for the U.S. utility to sell to EDF non-nuclear assets of as much as $2 billion, Paris-based EDF said today. Buffett’s MidAmerican Energy Holdings Co. agreed earlier this year to buy all of Constellation for $4.7 billion.

“They’re much closer to what we thought all along was the fair value of the company,” James Halloran, who helps manage about $34 billion, including Constellation shares, at National City Private Client Group in Cleveland, said in a telephone interview. “They’ll have to give it serious consideration.”

EDF, which owns 9.5 percent of Constellation, in October backed out of a $6.2 billion bid for the whole company with buyout firms KKR & Co. and TPG Capital LP. Its new approach, through a proposed joint venture with the Baltimore-based utility, is designed to ensure EDF can own and operate plants in the U.S. and avoid possible opposition to foreign ownership of nuclear facilities.

Constellation spokesmen Larry McDonnell and Robert Gould didn’t immediately return messages placed before normal business hours in Baltimore. MidAmerican, based in Des Moines, Iowa, has no comment to make on the offer, spokeswoman Ann Thelen said.

‘Good Time’

“EDF has to come up with the cash now, which could be negative in the current climate, but it’s a good time to make acquisitions because the market is at such a low point,” said Arnaud Scarpaci, a fund manager at Agilis Gestion in Paris.

EDF slid as much as 6.6 percent in Paris and traded down 2.395 euros at 42.175 euros as of 2:05 p.m. local time. Constellation surged 19 percent to $30 a share before the start of regular trading on the New York Stock Exchange. That’s the highest price since Constellation accepted the MidAmerican offer.

“The offer is aimed at consolidating our role in developing new nuclear in the U.S.,” EDF Chief Executive Officer Pierre Gadonneix said in an interview in Paris. “It would bring long-term resources to Constellation,” he said, adding it was “far superior” to MidAmerican’s bid.

EDF said the proposal “is not subject to a financing condition” and approval from Constellation’s stockholders is not required. The Paris-based utility said its offer values the whole of Constellation at $52 a share, more than double yesterday’s closing price.

‘Significantly Undervalues’

“Constellation is fundamentally strong and EDF, like many others, believes that the proposed MidAmerican transaction significantly undervalues Constellation and its future opportunities,” Gadonneix said earlier in a statement. The offer provides “more than sufficient liquidity” to allow it to remain a standalone company, he said.

EDF agreed to buy Eagle Energy Partners I LP from bankrupt investment bank Lehman Brothers Holdings Inc. in September to expand gas and power trading in North America. The acquisition gave it power production, gas-storage and transportation assets.

MidAmerican moved to snap up Constellation in September for less than half its end-August market value after Constellation plunged 58 percent in New York amid investors’ concern that turmoil in financial markets would wreck its energy-trading business.

Competing Offer

“The timing of the bid is worrying investors because of the current credit climate,” Chicuong Dang, a Paris-based analyst at KBL Richelieu Gestion, which has about $6.2 billion under management, said by telephone. “EDF’s offer is reasonably priced. Buffett’s offer is really low.”

Constellation has called on shareholders to approve the deal with MidAmerican, priced at $26.50 a share, in a vote scheduled for Dec. 23.

“We haven’t had any independent talks with Warren Buffett or MidAmerican,” Gadonneix said in the interview, adding he hoped Constellation’s board would examine EDF’s offer “objectively.”

EDF’s offer of $1 billion in cash and the possible purchase of non-nuclear assets for as much as $2 billion “will more than cover” liquidity needs related to the termination of the agreement with MidAmerican, the French utility said in a document filed with the U.S. Securities and Exchange Commission.

Breakup Fee

MidAmerican would walk away with a 9.9 percent stake, $593 million in cash, and $1 billion of senior notes paying 14 percent interest, Constellation said yesterday in an SEC filing. The cash portion includes a $175 million breakup fee.

Constellation would also have to return any unused portion of a $350 million credit line.

EDF’s offer is for a 50-50 joint venture that would own Constellation’s five nuclear-power reactors in the U.S., two at the Nine Mile Point plant and another at the Ginna plant in New York, and the two-unit Calvert Cliffs station in New York.

Constellation and EDF already have a 50-50 joint venture that was created last year called Unistar Nuclear Energy LLC to develop new nuclear reactors in the U.S. using Areva SA’s EPR Evolutionary Power Reactor design.

The U.S. power company said yesterday that 2009 profit will fall to as little as $1.50 per share should shareholders reject the takeover by MidAmerican.

The offer comes after EDF agreed in September to buy British Energy Group Plc for 12.5 billion pounds ($18.5 billion) to become the U.K.’s biggest power producer and gain control of eight sites to build reactors.

Exelon Corp., the biggest U.S. utility company by market value, offered in October to buy NRG Energy Inc. for $6 billion in stock, betting it will be able to refinance NRG’s $8 billion in debt at lower costs. NRG, based in Princeton, New Jersey, has urged its shareholder to reject the bid, which would create the largest U.S. power producer.

J.P. Morgan is the financial adviser for EDF, the French utility said.

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