Warren Buffett: Why Fight When You Can Take the Money And Run?

Gail Burton

The Constellation Energy building is photographed Monday, Dec. 19, 2005, in Baltimore. Energy supplier FPL Group Inc. is buying rival power-plant operator Constellation Energy Group Inc. for more than $11 billion in stock in a deal announced Monday that would create one of the nation's biggest electricity conglomerates. (AP Photo/Gail Burton)

Warren Buffett's bid to buy Constellation Energy Group at a bargain price may have been "challenged" today by a significantly higher offer from Electricite de France, but don't expect a bidding war to break out.

Last September, Constellation was in big trouble. Its stock was under enormous pressure as the Baltimore-based company faced a liquidity crunch that could have put it into bankruptcy.

MidAmerican Energy Holdings, a subsidiary of Buffett's Berkshire Hathaway, came to the rescue with a quick infusion of one billion dollars and a deal to buy the entire company for $4.7 billion, or $26.50 a share. That looked like another "Buffett Bargain," with the stock trading over $100 a share just about 10 months before.

At the time, EDF made some noises about mounting a challenge for its U.S. joint-venture partner, but nothing happened, until now.

Today, EDF is offering to pay $4.5 billion for 50 percent of Constellation's nuclear business. That's just $200 million less than the price Buffett is paying for the entire company. The French company is also offering an up-front $1 billion cash investment in Constellation and says it's willing to buy another $2 billion of the company's non-nuclear assets.

EDF calculates that its proposal values Constellation at around $52 a share, almost double Buffett's offer. Indeed, EDF argues MidAmerican's offer "significantly undervalues" Constellation. It wants that company's board to drop the Buffett deal and accept its "superior" proposal.

That could indeed happen. The two offers aren't even close.

Buffett does have the advantage of being ready to go with cash in hand and without the possible regulatory complications of a French company buying U.S. nuclear assets. But that advantage appears to be dwarfed by the sheer size of EDF's offer.

One possibility: Buffett responds by raising his own offer, setting up a bidding war for Constellation. The New York Times quotes one analyst on that possibility: "Warren Buffett has a lot of funds at his disposal... Two very strong parties bidding for Constellation can only drive the final price higher."

Don't count on it, however. It's just not Buffett's style. He likes bargains, not bidding wars.

Plus, he presumably won't be all that upset if the MidAmerican deal doesn't go through.

Under the terms of their deal, Constellation would have to give MidAmerican almost 10 percent of its common stock, make a payment of almost $600 million in cash and pay 14 percent on MidAmerican's $1 billion cash infusion. That should be enough to dry any Buffett tears.

As the always-insightful David Faber noted on CNBC TV this morning, Buffett is a tough negotiator who likes to create win-win situations for himself. If EDF's bid ultimately fails for whatever reason, he gets Constellation for his bargain price. If EDF succeeds, he gets the big break-up fee. Either way, there's no bidding war.

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