A shareholder "no" vote means Constellation must repay Buffett's $1 billion bailout cash, plus up to 14 percent interest. He gets a $175 million "termination fee." Plus he gets 20 percent of Constellation's common stock for free.
Even under such harsh terms, however, several shareholders I talked to wonder whether rejecting the merger might not be their best bet. Existing shareholders would still own four-fifths of a company that was worth $19 billion in January.
True, this ain't January.
Electricity prices have plunged, meaning future Constellation profits will be smaller than expected. A lower debt rating and language in the merger agreement hamper the company's ability to replace Buffett's bailout cash. Credit markets are still weird.
The worry in some circles isn't that Buffett got too good a deal.
It's that he'll walk away. The deal lets him do so if the value of Constellation assets falls by more than $400 million from their level on June 30. Many investors think the company might have to mark down large positions on coal, natural gas and electricity. Those kinds of bets were what made it vulnerable to last month's attacks in the first place.
Yesterday Constellation shares were selling for $23.20, which suggests investors are skeptical that the $26.50 merger will happen, let alone a higher offer from Buffett or anybody else.
"The stock will be under pressure" if the deal doesn't go through, Bank of America analyst Shelby G. Tucker wrote in a report to clients.
But here's the other side of the argument.
If Constellation can exit high-risk bets and raise cash, it'll be in a better position to survive if shareholders veto the merger - or if the Maryland Public Service Commission rejects the deal next year.
Things are already moving in this direction. Besides the $1 billion they got from Buffett, executives are trying to mend the company's health by reducing commodity positions in moves that could raise more than $1 billion in cash. Constellation also got a $2 billion loan commitment from UBS and The Royal Bank of Scotland, although the deal hasn't closed.
Maybe that's enough for shareholders to call Buffett's bluff, spike the merger and cross their fingers. Since he'll be a 20 percent shareholder if the deal fails, Buffett might even extend new bailout cash if needed.
Ultimately, however, the "just say no" gambit probably won't work without a global financial recovery and the kindness of credit-rating agencies. If markets are maniacal when shareholders vote, Buffett's $26.50 sure thing will look better than the alternative, which might be a lot less.
But if a measure of calm and clarity returns, Constellation's numerous Maryland shareholders might decide it's in their interest as well as Baltimore's to keep the company here.
