EDF Gets In The Ring With Buffett

But the French utility’s attempt to out-bid the billionaire for Constellation Energy is unlikely to succeed.

Electricite De France has just picked itself a formidable competitor. The French energy giant is offering $4.5 billion for 50.0% of Constellation Energy’s nuclear energy assets, even though billionaire Warren Buffett has already bid for the unit. Unfortunately for EDF, this is a battle it will most likely lose.

“Strategically it makes sense, but I don’t believe [EDF’s] move will succeed. It’s not just a matter of price,” said WestLB analyst Peter Wirtz. EDF’s offer values Constellation shares at $52.0 each, a massive, 96.0% premium on the offer from MidAmerican, a unit of Buffett’s Berkshire Hathaway (nyse: BRKnews people ). The French utility announced Wednesday that it had sent a letter to the board of Constellation Energy, proposing a joint venture for its nuclear generation and operation business. EDF, which owns 9.5% of Constellation Energy and is its largest shareholder, said it believed the Buffett offer “significantly undervalues Constellation and its future opportunities.”

Constellation is running out of time, though. On Tuesday the company based in Baltimore, Maryland said it would have to file for bankruptcy protection without an immediate infusion of $1.0 billion from MidAmerican. Constellation’s management is thus likely to push hard for the existing bid to go through.

EDF’s bid, though financially more attractive in the short term, still probably isn’t enough to convince shareholders. “In terms of long term strategy, earnings stream and value is more clear cut if you are part of a merged entity and control 100.0% of it,” says Wirtz. A more likely outcome is that Constellation’s shareholders will put pressure on management to get a better deal from MidAmerican.

Wirtz believes EDF has also shown its vulnerable side through this offer. “It indicates that the company doesn’t have a ‘Plan B’ for entering the U.S. market,” he told Forbes.com. EDF withdrew its $35.0 a share offer for the whole of Constellation Energy in October, citing turbulent market conditions.

Shares of Electricite De France (nyse: EDFnews people ) fell 5.5%, or 2.43 euros ($3.07), to 42.14 euros ($53.22), in Paris on Wednesday morning. Constellation Energy (nyse: CEGnews people ) had risen 5.1%, to $25.15 on Tuesday and was up 21.2%, or $5.08, at $29.01 in pre-market trading on Wednesday.

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