EDF Said Close to Constellation Deal, Topping 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 Holdings 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. Francois Molho, a spokesman for Paris- based EDF, declined to comment today and Constellation spokesman Larry McDonnell couldn’t be reached yesterday.

EDF rose as much as 2.6 percent to 41.15 euros in Paris. The stock was at 41 euros as of 3:13 p.m. local time, valuing the company at 74.6 billion euros ($102.4 billion). Constellation climbed 70 cents, or 2.6 percent, to $28 in New York Stock Exchange composite trading.

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

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

EDF Bid

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

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.

MidAmerican Chairman David Sokol said in a CNBC interview this morning that he won’t “counterbid the structure” of the EDF offer. The comments reiterated the stand that Sokol took in a Dec. 3 interview with Bloomberg.

No Counterbid Planned

“We have a signed merger agreement,” Sokol said in the earlier interview. “We have no intention to alter our bid.”

EDF was trying to “cherry-pick” Constellation’s best assets without taking on any burdens in the rest of the business, Sokol told Bloomberg. A spokeswoman for Sokol, Ann Thelen, didn’t return a telephone call seeking comment yesterday.

Buying a stake in Constellation’s nuclear plants “makes sense for EDF from a strategic point of view,” said Peter Wirtz, an analyst at WestLB in Dusseldorf. It’s not cheap, but it’s cheaper than what EDF is paying for British Energy to get entry into the U.K.”

The French power producer agreed to buy British Energy Group Plc for 12.5 billion pounds ($19 billion) to gain control of eight nuclear plant sites with potential to build new reactors. EDF wants to develop evolutionary power reactors, or EPRs, in the U.K. and the U.S. and is already building a 1,650- megawatt model in Flamanville, Normandy.

Buffett’s Compensation

Terminating the agreement with MidAmerican would cut Constellation’s available cash and credit by $2.4 billion, EDF estimated earlier this month. 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.

“The name of the game is to walk away with more money than he started with, and that’s what he’s going to do,” said James Halloran, who helps manage about $34 billion in assets, including Constellation shares, at National City Private Client Group in Cleveland. “There are other utilities out there, and nothing says he has to buy this one.”

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

The French suitor 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 the whole company.

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