Warren E. Buffett's MidAmerican Energy Holdings Co. said yesterday that it is moving forward with a planned $4.7 billion acquisition of Baltimore-based Constellation Energy Group after completing a review of the BGE parent's retail and wholesale businesses.
But one of the company's largest shareholders yesterday acknowledged that it was still considering whether to renew a higher bid for Constellation after complaining that Buffett's price was too low. And the deal needs approval from shareholders, some of whom have filed lawsuits objecting to the $26.50-a-share offer.
Shares of Constellation rose $3.48, or almost 15 percent, to close at $27.23 yesterday on the New York Stock Exchange. It marked the highest share price since the MidAmerican deal was announced two weeks ago.
MidAmerican said yesterday that it completed its 14-day due diligence of the deal, including studying Constellation's trading records. The announcement came a day earlier than the deadline set by both companies. And it waived MidAmerican's right to terminate the merger agreement, said Gregory E. Abel, president and chief executive officer of MidAmerican.
As part of the deal, MidAmerican had purchased $1 billion of preferred shares from Constellation, providing an immediate cash infusion that averted a potentially fatal credit downgrade for the Baltimore company.
"We are now poised to successfully complete the merger approval process," said Mayo A. Shattuck III, chairman, president and chief executive officer of Constellation Energy.
Also yesterday, Berkshire Hathaway Inc., the majority equity holder of MidAmerican, took the first step in getting antitrust approval from federal regulators, filing notification of the merger under the Hart-Scott-Rodino Antitrust Improvements Act.
The companies' announcements came as the Financial Times reported that Electricite de France, one of Constellation's largest shareholders and its partner in nuclear power development, is in talks with private equity group Kohlberg Kravis Roberts and Co. to renew a failed bid for Constellation. That report said the chief executive of the French electricity group was to meet with KKR executives this week to finalize details of a deal.
A spokeswoman for KKR, Diana Postemsky, declined to comment on the Financial Times report.
EDF had formally protested Constellation's sale to MidAmerican, saying it had offered a substantially higher bid of $6.2 billion, or $35 per share, but got no response from the Baltimore energy company's board. Shattuck has said that Buffett's involvement bolstered confidence in Constellation amid the market turmoil and that the likelihood of easier regulatory approval made the MidAmerican offer "the best overall solution for all our stakeholders."
Yesterday, EDF spokeswoman Carole Trivi acknowledged that EDF is still in talks with KKR regarding Constellation, after having submitted the previous joint offer with KKR and TPG Capital.
"We are still studying different options," Trivi said. "EDF is now reviewing all its options to increase the value of its investment in Constellation."
MidAmerican's agreement to buy Constellation has been approved by both companies' boards of directors, but still must be approved by state and federal regulators as well as shareholders.
At least eight shareholder lawsuits have been filed since the takeover was announced. Several of the lawsuits allege that the board failed to live up to its fiduciary responsibilities. Some of the complaints say the per share offer is nearly 60 percent less than what the company was worth a week before the deal was announced. The offer represented a 7 percent premium over Constellation's closing price Sept. 17, the day before the MidAmerican announcement was made.
Shattuck has said that the MidAmerican deal was reached out of necessity as the company faced a credit crisis threatening to force it into bankruptcy.
According to the merger agreement filed with the Securities and Exchange Commission, Constellation must pay a $175 million breakup fee if the deal falls through for any reason other than MidAmerican's breaching the contract. Additionally, MidAmerican's preferred stock would convert to 19.9 percent of Constellation's common stock and senior notes payable at 14 percent interest and due Dec. 31, 2009.
"The deal as it is structured is the likely outcome at $26.50 [per share], but I don't think EDF is going to go down without a fight," said Paul Justice, a Morningstar analyst.
He said the company would have to sweeten its original $35 per share offer. Even so, such a bid would be difficult because of clauses in the merger agreement that would restrict Constellation from cooperating.
"At the end of the day, I think it would have to be an incentive directed toward MidAmerican," Justice said.
EDF pursued Constellation after nearly doubling its stake in company to 9.5 percent on Aug. 28, paying nearly $68.49 a share, meaning it lost more than $340 million in three weeks under the offer from MidAmerican.
The French company and Constellation formed a joint venture in 2007 to develop and deploy new nuclear power plans in the United States and Canada.
"We remain committed to opportunities in the U.S. nuclear industry," Trivi, the EDT spokeswoman said yesterday.
Baltimore Sun reporter Jay Hancock contributed to this article.