Warren Buffett's MidAmerican Energy bids $4.7 billion for Constellation Energy

19 September 2008

Warren Buffett has capitalised on the prevailing low valuations caused by the negative market sentiments by acquiring Constellation Energy Group, a Fortune 125 company and the largest US power marketer, whose stock had taken a beating due to acute shortage of liquidity in its commodities trading business, for about $4.7 billion in cash.

MidAmerican Energy, which is controlled by Warren Buffett's Berkshire-Hathaway, has made a tentative agreement to acquire Constellation for $26.50 a share, which is approximately 60 per cent lower than its market value a week ago.

EDF, the French power group with a minority stake in Constellation, had injected $500 million as capital investment and doubled its stake to 9.51 per cent last week in a bid to acquire the US power firm.

Buffett, who has a penchant for investing in the US power sector, was seen as a better investor than EDF by the MidAmerican board.

In 2000, he paid $1.7 billion to acquire an 85-per cent stake in MidAmerican and later acquired the rest. The company operates regulated utilities in 10 states in the US and plants in Australia and the Philippines. It is also a pipeline operator of Northern Natural Gas.The acquisition will nble it to acquire Constellation's  nuclear plants and other power stations in the East and its Baltimore Gas & Electric He had earlier bought shares of NRG Energy and loaned it to Williams, Reliant and TXU at large interest rates.

The companies expect to enter into a definitive merger agreement by close of business, September 19. Upon signing a definitive merger agreement, Constellation Energy will issue $1 billion of preferred equity yielding 8 per cent to MidAmerican.