Electricite de France's proposal to invest $4.5 billion in Constellation Energy Group's nuclear-generation business looks like it has a shot.
Since the state-owned French electricity giant pitched the deal last week, investors have bid Constellation stock as high as $29. That's a bet that a rival proposal from Warren Buffett for $26.50 won't go through or that Buffett will take it seriously enough to increase his offer.
Rating agencies have suggested that if Constellation shareholders reject Buffett's deal in favor of EDF, Constellation would have enough cash at hand to avoid bankruptcy court.
Most encouraging for the French, Constellation's board has agreed to speak with them. This is a bigger deal than it seems. Buffett's contract requires Constellation's directors to support his offer and avoid talks with rival bidders in all but a narrow set of circumstances, one of which is the arrival of a "superior proposal."
On Monday, Constellation said it would open talks, signaling that directors believe EDF's offer might indeed be better.
Now Constellation's board will have to macarena its way between its contractual obligation to Buffett and its legal duty to shareholders, who have been hammered by a 75 percent decline in Constellation stock. Whether it continues to recommend Buffett's deal or reverses itself, it could be trumped by Constellation shareholders, who vote on the transaction Dec. 23. (The Buffett buyout also requires state and federal approval.)
Hopes of a Buffett counteroffer helped prop up the stock. Yesterday, MidAmerican Energy Holdings, the Buffett-controlled company bidding for Constellation, repeated its vow to stand pat.
"We have a signed merger agreement with Constellation Energy, and we have no intention to alter that bid," said spokesman Mark Reinders.
Constellation stock popped on Monday's announcement but dropped back below $27 yesterday. It's still trading higher than before EDF announced its bid, however.
Constellation owns Baltimore Gas & Electric and is one of metropolitan Baltimore's biggest companies. Buffett has offered to buy the whole company for $4.7 billion. EDF has offered a nearly equal amount - $4.5 billion - for a half-interest in Constellation's nuclear energy business. Under the French bid, Constellation stock would continue trading.
