Buffett buying Baltimore-based Constellation

$4.7 billion offer well off 52-week trading high

By | Friday, September 19, 2008

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From combined dispatches

Warren Buffett's Berkshire Hathaway Inc. is reaching into its deep pockets to give a steadying hand to Constellation Energy Group Inc. and, at the same time, grab a bargain.

Berkshire's MidAmerican Energy Holdings Co. said Thursday it will buy Baltimore-based Constellation for $4.7 billion and give it an immediate $1 billion infusion after shares of the nation's largest wholesale power seller plummeted and liquidity concerns had analysts worried it would go out of business.

"Obviously we're in unprecedented times," MidAmerican President and CEO Gregory Abel said. "Liquidity and solvency issues are a top priority for many companies. We don't have any of those concerns, again, at MidAmerican and Berkshire."

MidAmerican will pay $26.50 per share in cash for Constellation, well off the utility's 52-week high of $107.97 reached Jan. 8. The shares traded as high as $67.87 last week before hitting a low of $13 on Tuesday.

Constellation shares fell 57 cents, or 2.3 percent, to $24.20 Thursday.

The companies planned to sign a definitive agreement by the end of business Friday, and Constellation will receive $1 billion by giving MidAmerican preferred equity, the companies said.

The boards of both companies approved the deal, but shareholders and regulators also will have to sign off.

Maryland Gov. Martin O'Malley, who has feuded with Constellation and subsidiary Baltimore Gas & Electric Co. over rising electricity rates, praised the deal.

"It was probably a much better result than what would have happened without this sort of action for Constellation shareholders," he said while visiting a school in Severna Park, Md. "You couldn't find a more reputable and stronger white knight than Warren Buffett."

Mr. O'Malley's Public Service Commission must still approve the sale. It was not clear what effect the sale would have on Maryland's electricity rates, which jumped 72 percent last summer.

The announcement was made just a day after Constellation said it had retained Morgan Stanley and UBS to act in an advisory capacity to evaluate "strategic alternatives."

Citi Investment Research analyst Greg Gordon said in a report Wednesday that Constellation would have to settle for the best deal it could find even though it may be less than the company's intrinsic value, much like Merrill Lynch & Co. did when it agreed to be bought by Bank of America Corp.

MidAmerican's Mr. Abel told reporters that Constellation has a solid business plan, but he hinted that Constellation's energy trading business, the source of its liquidity problems, might be reined in.

• Reporter Tom Lobianco contributed to this article, which is based in part on wire service reports.

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