Constellation Finds Disappointing Buyout (CEG, BRK-A)

Good news and bad news…. Constellation Energy (NYSE: CEG) has found a buyer.  The bad news is that it is a tentative deal that is for a mere $26.50 per share.  MidAmerican Energy Holdings Company, part of Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) empire, has reached a tentative agreement to acquire the company for $4.7 billion.  This translates to $26.50 per share. 

The businesses expect to reach a formal deal tomorrow. As part of thearrangement, Constellation will issue $1 billion of preferred equityyielding 8% to MidAmerican.  The deal has also been approved by theboards of directors of both companies.  Keep in mind that it is subjectto further due diligence as well as shareholder and regulatoryapprovals.  It is expected to close within 9 months.  MorganStanley and UBS acted as advisers in the transaction.

As to whether or not this deal gets done, that is another issue.Buffett could back out.  Shareholders  also mightnot go along.  The 52-week high for Constellation is more than $100.00. It lookslike another merger that is not good for existing shareholders.  Theother side of the argument is that Constellation has no choice but tomerge even if it is a "takeunder" type of transaction.

Constellation was up 25% last night north of $30.00 on reports that French partnerin the U.S. EDF might be interested in taking a higher stake or justacquiring it outright.  This stock is up only about 5% at $26.00 inpre-market trading.

Jon C. Ogg
September 18, 2008