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With a credit crisis threatening its very existence, Baltimore's Constellation Energy Group agreed yesterday to be sold to Warren Buffett's MidAmerican Energy Holdings for $4.7 billion - about half the company's value a week ago.
The development marked a stunning decline for Constellation, one of only two Baltimore-area Fortune 500 companies. And it came amid a Wall Street meltdown that emerged last weekend with the fall of Lehman Brothers and quickly spread panic among investors.
Consellation came under extraordinary pressure as investors lost confidence in the company's ability to access cash and credit to fund its business. In three days, Constellation's stock lost nearly 60 percent of its value. As a result, the parent of Baltimore Gas and Electric Co. was forced over the course of 48 hours to seek a partner with deeper pockets.
Under the proposal, MidAmerican will provide Constellation with $1 billion immediately to avert a potentially fatal credit rating downgrade.
"MidAmerican was wise enough to, in effect, come to the rescue and offer their help with respect to keeping this company from running out of commercial ability," Mayo A. Shattuck III, the chairman and chief executive of Constellation, said in a brief interview yesterday.
Under the deal, Des Moines, Iowa-based MidAmerican will pay $26.50 a share for Constellation - a little less than $5 billion. That contrasts with Constellation's failed $12.4 billion merger with Florida's FPL Group nearly two years ago. The deal failed amid political debate in Maryland over deregulation and rising electricity rates.
MidAmerican is controlled by Buffett's Berkshire Hathaway, a conglomerate based in Omaha, Neb. MidAmerican, which has roughly 20,000 megawatts of generation capacity, owns electricity and gas companies in the Midwest and the West Coast, including PacifiCorp, as well as U.S. pipeline companies and electricity distribution companies in Britain.
The acquisition likely means few changes for customers of BGE, which is regulated by the state.
"We're very excited to be in this community, and clearly we see Constellation Energy continuing as it has," said Gregory E. Abel, MidAmerican's president and chief executive officer.
He said MidAmerican is committed to letting Constellation operate independently. It is one of the area's largest employers, with 10,200 employees at the end of last year, including more than 6,700 in Maryland. Abel did not directly address the potential impact on Constellation's work force.
Phil Adams, a senior investment grade analyst at Gimme Credit, a corporate bond research firm, said job cuts could come at the corporate level where there are redundancies.
Shattuck told workers in a memo that MidAmerican is not buying Constellation with "a promise to shareholders to reduce employees or slash costs."
Less clear is the status of Shattuck. Abel said there had been no talk on retaining Constellation's management team, though analysts say Berkshire's philosophy has been to let current management stay.
Shattuck is eligible for at least $48 million in severance and benefits if he leaves the company, according to documents filed earlier this year with the Securities and Exchange Commission.
The rapid-fire deal is a low point for Shattuck, known as a consummate deal-maker, who joined the board of Constellation in 1999 and took over in October 2001 at a critical time. The company had just decided to scrap a plan to split into two businesses, a move that forced it to pay Goldman Sachs $355 million to end a partnership. Also, the industry faced uncertainties about deregulation against the backdrop of the California energy crisis and collapse of Enron Corp.
Under his turnaround plan, which transformed the company from a small utility to the largest energy marketer in the United States, the stock price rose an average of 25 percent a year and revenue increased to $21 billion last year.
The companies said they expect to enter into a definitive merger agreement by 5 p.m. today. At that point, Constellation will issue $1 billion of preferred stock yielding 8 percent to MidAmerican, giving Constellation an immediate cash infusion.
Constellation shares lost 57 cents, or 2.3 percent, to close at $24.20 yesterday. The shares are down 76 percent this year.
The deal requires approval from shareholders and state and federal regulators. The transaction is expected to close in about nine months. Constellation gives MidAmerican, which has been looking to expand, a footprint in the Northeast, Abel said. Constellation is a customer of MidAmerican, buying natural gas from it.
Constellation is likely to move forward with a plan to build a new nuclear reactor at its location in Lusby, Abel said during a news conference yesterday at Constellation's Inner Harbor headquarters.
The development marked a stunning decline for Constellation, one of only two Baltimore-area Fortune 500 companies. And it came amid a Wall Street meltdown that emerged last weekend with the fall of Lehman Brothers and quickly spread panic among investors.
Consellation came under extraordinary pressure as investors lost confidence in the company's ability to access cash and credit to fund its business. In three days, Constellation's stock lost nearly 60 percent of its value. As a result, the parent of Baltimore Gas and Electric Co. was forced over the course of 48 hours to seek a partner with deeper pockets.
Under the proposal, MidAmerican will provide Constellation with $1 billion immediately to avert a potentially fatal credit rating downgrade.
"MidAmerican was wise enough to, in effect, come to the rescue and offer their help with respect to keeping this company from running out of commercial ability," Mayo A. Shattuck III, the chairman and chief executive of Constellation, said in a brief interview yesterday.
Under the deal, Des Moines, Iowa-based MidAmerican will pay $26.50 a share for Constellation - a little less than $5 billion. That contrasts with Constellation's failed $12.4 billion merger with Florida's FPL Group nearly two years ago. The deal failed amid political debate in Maryland over deregulation and rising electricity rates.
MidAmerican is controlled by Buffett's Berkshire Hathaway, a conglomerate based in Omaha, Neb. MidAmerican, which has roughly 20,000 megawatts of generation capacity, owns electricity and gas companies in the Midwest and the West Coast, including PacifiCorp, as well as U.S. pipeline companies and electricity distribution companies in Britain.
The acquisition likely means few changes for customers of BGE, which is regulated by the state.
"We're very excited to be in this community, and clearly we see Constellation Energy continuing as it has," said Gregory E. Abel, MidAmerican's president and chief executive officer.
He said MidAmerican is committed to letting Constellation operate independently. It is one of the area's largest employers, with 10,200 employees at the end of last year, including more than 6,700 in Maryland. Abel did not directly address the potential impact on Constellation's work force.
Phil Adams, a senior investment grade analyst at Gimme Credit, a corporate bond research firm, said job cuts could come at the corporate level where there are redundancies.
Shattuck told workers in a memo that MidAmerican is not buying Constellation with "a promise to shareholders to reduce employees or slash costs."
Less clear is the status of Shattuck. Abel said there had been no talk on retaining Constellation's management team, though analysts say Berkshire's philosophy has been to let current management stay.
Shattuck is eligible for at least $48 million in severance and benefits if he leaves the company, according to documents filed earlier this year with the Securities and Exchange Commission.
The rapid-fire deal is a low point for Shattuck, known as a consummate deal-maker, who joined the board of Constellation in 1999 and took over in October 2001 at a critical time. The company had just decided to scrap a plan to split into two businesses, a move that forced it to pay Goldman Sachs $355 million to end a partnership. Also, the industry faced uncertainties about deregulation against the backdrop of the California energy crisis and collapse of Enron Corp.
Under his turnaround plan, which transformed the company from a small utility to the largest energy marketer in the United States, the stock price rose an average of 25 percent a year and revenue increased to $21 billion last year.
The companies said they expect to enter into a definitive merger agreement by 5 p.m. today. At that point, Constellation will issue $1 billion of preferred stock yielding 8 percent to MidAmerican, giving Constellation an immediate cash infusion.
Constellation shares lost 57 cents, or 2.3 percent, to close at $24.20 yesterday. The shares are down 76 percent this year.
The deal requires approval from shareholders and state and federal regulators. The transaction is expected to close in about nine months. Constellation gives MidAmerican, which has been looking to expand, a footprint in the Northeast, Abel said. Constellation is a customer of MidAmerican, buying natural gas from it.
Constellation is likely to move forward with a plan to build a new nuclear reactor at its location in Lusby, Abel said during a news conference yesterday at Constellation's Inner Harbor headquarters.
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