EDF Said Close to Buying Constellation Stake, Thwarting Buffett

By Dan Lonkevich and Jim Polson

Dec. 16 (Bloomberg) -- Electricite de France SA is close to an agreement to buy half the nuclear power business of Constellation Energy Group Inc. for $4.5 billion, trumping a takeover bid by Warren Buffett’s MidAmerican Energy Co., people familiar with the situation said.

Approval by Constellation’s board is contingent on waivers of bank covenants and may be announced as early as this week, said one of the people, who declined to be identified because the talks are private. Paris-based EDF and Constellation spokesmen Francois Molho and Larry McDonnell couldn’t be reached for comment yesterday.

Baltimore-based Constellation, the largest U.S. power marketer, accepted MidAmerican’s $4.7 billion offer in September to stave off a credit downgrade that it said may have led to bankruptcy. EDF, the world’s biggest nuclear-plant operator, made its bid on Dec. 3, saying Buffett was paying too little. Constellation agreed Dec. 8 to open talks with EDF.

“Of the two, EDF is looking at the long term, at expansion,” Daniele Seitz, a utility consultant for Seitz Research in New York, said in an interview. “They and Constellation’s management want a role in future nuclear generation in the U.S.”

EDF has offered $1 billion up front and $3.5 billion upon closing for a 50 percent stake in a joint venture owning Constellation’s five reactors. EDF also said it would be willing to buy as much as $2 billion of non-nuclear power plants at fixed prices should Constellation need the money. The companies already have a 50-50 venture to build nuclear reactors.

Plunging Stock

Constellation agreed in September to the cash deal with MidAmerican, a unit of Omaha, Nebraska-based Berkshire Hathaway Inc., after its stock plunged 58 percent in three days on credit concerns following the bankruptcy of Lehman Brothers Holdings Inc. Buffett agreed to buy $1 billion of preferred stock, averting a credit downgrade that “was likely to lead to bankruptcy,” Constellation said in a Nov. 25 filing.

EDF was trying to “cherry-pick” Constellation’s best assets without taking on any burdens in the rest of the business, MidAmerican Chairman David Sokol said in a Dec. 3 interview. A spokeswoman for Sokol, Ann Thelen, didn’t return a phone call seeking comment yesterday.

Terminating the agreement with MidAmerican would cut Constellation’s available cash and credit by $2.4 billion, EDF estimated. Buffett’s agreement called for MidAmerican, in the event the takeover was canceled, to walk away with $593 million in cash, a 9.9 percent stake in Constellation and $1 billion of senior notes paying 14 percent interest.

EDF said its offer, along with asset sales planned by Constellation, would provide the company with sufficient cash and credit to operate.

The French company said its bid for a nuclear stake reflects a value of $52 a share for all of Constellation. MidAmerican offered $26.50 a share for Constellation.

Constellation rose 13 cents to $27.30 yesterday in New York Stock Exchange composite trading.

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net