Whenever something like this comes along, one has to ask, "Are these guys serious?"  Electricite de France (EDF) yesterday offered Constellation Energy (NYSE:CEG) a premium of about 96% to purchase half of Constellation’s nuclear power business. EDF could be too late to the party.  Constellation has already mailed adefinitive proxy to shareholders supporting the $26.50/share bid fromWarren Buffet’s Berkshire Hathaway (NYSE:BRK.A) subsidiary Mid-AmericanHoldings.

A shareholder vote on the sale is scheduled for December 23rd.  The total value of the EDF deal could reach $6.5 billion, if EDF buys some non-nuke assets, $4.5 billion just for the nukes. EDF already owns about 10% of Constellation.

What on earth could EDF be thinking? The French nuclear giant alreadybowed out of the bidding for Constellation once. Less than two monthsago EDF said that it wanted to expand into the US but that creditconditions and the general economic climate were too awful.

The new EDF offer gives the whole of Constellation an implied value of around $52.00, nearly twiceBerkshire Hathaway’s offer.  Just don’t try to go spend that $52.00 because it is an implied number.  Is this merely the French way of trying toboost the currently leading offer? Or, are these guys serious?

After the Berkshire Hathaway offer was made back in September, EDF issued a statement saying that the offer "does not generate the valuecreation expected by shareholders." That’s pretty standard stuff, butthe French company was in no position to do anything more than justmake noise. What’s changed?

Maybe nothing. EDF says it will finance the Constellation acquisitionwith existing cash and credit. Fine, but it could have done that twomonths ago. That means this is just a move to drive up BerkshireHathaway’s bid.

Or, it could be that EDF is running into European Union resistance toits bid for British Energy, the UK’s largest nuclear power generator.The EU wants competition in the European power market, and a link-upbetween EDF and British Energy does not support that goal. This isslightly more likely.

The EDF deal is clearly superior, basically doubling Buffet’s bid. Butis it too late? Will EDF’s offer pass US anti-trust muster? Stay tuned.

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Paul Ausick
December 3, 2008

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