Berkshire unit to acquire Constellation Energy
Warren E. Buffett’s Berkshire Hathaway Inc. is reaching into its deep pockets to help Constellation Energy Group Inc. and at the same time grab a bargain.
Berkshire’s MidAmerican Energy Holdings Co. said Thursday that it would buy Constellation for $4.7 billion and give it an immediate $1-billion infusion.
Shares of Constellation, the nation’s largest wholesale power seller, had plummeted in recent days, and liquidity concerns had analysts worried that it would go out of business.
“Obviously we’re in unprecedented times,” MidAmerican President and Chief Executive 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.”
Des Moines-based MidAmerican would pay $26.50 a share in cash for Baltimore-based Constellation, well off the utility’s 52-week high of $107.97 reached Jan. 8. The shares last week traded as high as $67.87 but hit a low of $13 on Tuesday. They fell 57 cents, or 2%, to $24.20 on Thursday.
The companies planned to sign a definitive agreement today, and Constellation would receive $1 billion by giving MidAmerican preferred equity, the companies said.
The boards of both companies approved the deal, but it must be approved by shareholders and regulators. The transaction is expected to close within nine months.
The announcement came a day after Constellation said it had retained Morgan Stanley and UBS to help it evaluate “strategic alternatives,” language often used by companies seeking a buyer, a merger or an acquisition.
On Tuesday, Constellation’s stock plummeted more than 50% before recovering somewhat in the afternoon. A day later, Standard & Poor’s Ratings Services placed Constellation’s investment-grade BBB debt ratings on CreditWatch “developing,” meaning they may be revised higher or lower, or maintained.
S&P; said Constellation needed to shore up its balance sheet in the face of a broad loss of market confidence by closing a $2-billion credit facility, getting an infusion of $750 million to $1 billion of new equity and selling assets, or by selling the company outright.
S&P; said the inability to execute on a transaction or a series of transactions in the very near term would cause a downgrade to sub-investment grade. That would force the company to post an additional $3.3 billion in collateral, which is beyond the company’s current available liquidity.
“Obviously, this is an untenable situation that would put the company out of business,” S&P; said.
