Buffet’s MidAmerican Energy Purchases Constellation at Bargain Price

Warren Buffett's MidAmerican Energy Holdings Co. agreed to buy Constellation Energy Group Inc. for about $4.7 billion, snapping up the largest U.S. power marketer at less than half its market value prior to this week.  
  
The cash deal is worth $26.50 a share, the companies said today in a statement. That's 7 percent higher than yesterday's close. The stock plunged 58 percent this week on concern turmoil in financial markets would wreck Constellation's energy-trading business.  
  
"That's a big haircut,'' said James Halloran, who helps manage $34 billion in assets, including Constellation shares, at National City Private Client Group in Cleveland. "The assets are valuable.''   
  
Constellation hired Morgan Stanley and UBS AG to explore strategic alternatives as its shares plunged this week. Lehman Brothers Holdings Inc.'s bankruptcy, the sale of Merrill Lynch & Co. and the government takeover of American International Group Inc. heightened investor concern over Baltimore-based Constellation's "undercapitalized'' trading business, according to analyst Paul Fremont of Jefferies & Co. in New York.  
  
MidAmerican, based in Des Moines, Iowa, and Constellation expect to complete a definitive merger agreement later today, the companies said. Once that's done, Constellation will issue $1 billion in preferred equity yielding 8 percent to MidAmerican, according to the statement.

Published on September 18, 2008