French Utility vs Buffett on Constellation Bid

EDF unveiled a $6.5 billion deal to buy 50 percent of Constellation Energy Group's nuclear business and some other assets in an attempt to torpedo a rival bid from Warren Buffett.

The proposed offer would give EDF, the world's largest nuclear utility, a solid foothold in the United States - the world's biggest nuclear energy market - and represents a major plank of its global expansion strategy.

Shares in EDF, which have lost more than 45 percent so far this year, were down 0.3 percent on Wednesday, partly on concerns that EDF's offer was too high, analysts said.

Constellation jumped over 9 percent in early trading.

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"EDF is right to invest in nuclear in the United States. But I am afraid that it is overpaying a bit for Constellation," said David Thebault, sales trader at Paris broker Global Equities.

EDF is also trying to secure European Union anti-trust approval for its acquisition of British Energy announced in September and has set its sights on China and South Africa.

EDF said on Wednesday it had sent a letter to Constellation's board saying it was offering $4.5 billion for half of Constellation's nuclear power business which operates five reactors on the east coast of the United States.

It also proposed to spend up to another $2 billion to buy non-nuclear assets in gas, oil and coal-generation operations.

EDF's indicative offer would include an upfront cash injection of $1 billion and would value the whole of Constellation at around $52 a share, EDF said -- a significant premium to its closing share price of $25.15 on Tuesday.

The terms top a rival offer of $4.7 billion from Buffett's Berkshire Hathaway unit MidAmerican Energy Holdings for Constellation that valued the U.S. energy company at $26.50 per share.

Good News for Areva

The Constellation deal is also likely to benefit French nuclear power reactor maker Areva in the long term, analysts said.

Areva shares were up more than 2 percent on Wednesday in midday trading amid a falling French stock market.

Last year, EDF and Constellation Energy created a joint venture called UniStar Nuclear Energy to develop, build and operate four EPR-type nuclear power plants in the United States.

"Had Buffett secured Constellation, it would have threatened the UniStar joint-venture beyond the four EPRs," Dexia analyst Dieter Furniere said.

But Furniere added that many analysts and traders believed EDF's offer price was too high.

EDF said it expected to win the necessary regulatory approvals for the deal and close it within six to nine months after signing a definitive agreement with Constellation.

Under the terms of EDF's proposal, Constellation would stay a standalone company.

"Constellation is fundamentally strong and EDF, like many others, believes that the proposed MidAmerican transaction significantly undervalues Constellation and its future opportunities," said EDF Chairman and Chief Executive Pierre Gadonneix in a statement.

In October, EDF dropped a bid for Constellation, saying the credit crisis had made financing more difficult to obtain.

In September, MidAmerican agreed to buy Constellation, which was on the brink of bankruptcy and also offered a $1 billion cash injection as part of its proposal.

Constellation faced liquidity issues due in part to ties of its trading business to collapsed U.S. investment bank Lehman Brothers , and its shares fell as low as $16.70, down from nearly $108 in January.

Constellation's five nuclear reactors together represent 3.73 percent of nuclear energy output in the United States.

EDF plans to finance the transaction through corporate funds and credit facilities.

JPMorgan is the exclusive financial advisor to EDF.

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