French utility says Buffett beat KKR, TPG with lower bid

An energy company controlled by Berkshire Hathaway won a bidding war for struggling US utility Constellation Energy with a bid for $4.7 billion (€3 billion), which was $1.5 billion lower than one offered by an investor consortium that included Kohlberg Kravis Roberts, TPG and French energy giant Electricite de France (EDF).

In Securities and Exchange Commission filings released today, the French utility said that the consortium had offered $35 per share for the Baltimore, Maryland-based power company, a 32 percent premium over the $26.50 per share bid offered by MidAmerican Energy Holdings, a company owned by Warren Buffett-led investment firm Berkshire Hathaway.

Warren Buffett

“The other terms and conditions of the [EDF, KKR and TPG] Proposal Request were either the same as or in the aggregate more favorable to Constellation than the terms and conditions of the preferred stock investment proposed by MidAmerican…” EDF said in the filings.

As Constellation faced plummeting stock prices last week amid fears that its energy trading practice was vulnerable to wild fluctuations in the financial markets, the company’s board began considering offers from external bidders.

On 18 September, Constellation announced that it had accepted Iowa-based MidAmerican’s acquisition offer, along with a $1 billion preferred stock investment intended to immediately shore up the utility’s rapidly shrinking capital base, according to the filings.

The following day, EDF made a request to make a proposal to Constellation’s board of directors to present its offer of $35 per share, as well as a $1 billion equity infusion through the purchase of non-voting preferred stock convertible into 10.4 percent of Constellation voting equity, 5.6 percent of non-voting equity convertible into voting equity and $750 million aggregate principal amount of 10 percent senior notes.

Constellation announced later that evening that it had finalised the deal with MidAmerican.

Paris-based EDF is a major shareholder in Constellation, and only two weeks ago upped its public stake in the utility to 9.5 percent. EDF stands to lose considerably on its investment in Constellation once the MidAmerican acquisition is completed next year. 

Buffett has been vocal in his criticism of private equity and its reliance on leverage, and was once quoted comparing private equity firms to “porn shops”.