CEG Parts with Buffett without Shareholder Approval

In what has been an action-packed M&A arbitrage drama, Constellation Energy (CEG) has entered a definitive agreement with France's EDF group to sell a 50% stake in its nuclear generation and operation business, bidding a hasty au revoir to Buffett's MidAmerican Holdings (MDPWK.PK).

Constellation Energy Group said Wednesday that it will sell a 49.9% stake in its fleet of five nuclear reactors and other holdings to Electricité de France SA for $4.5 billion, derailing the pending $4.7 billion takeover by Warren Buffett's MidAmerican Energy Holdings.

Nevertheless, CEG and MidAmerican parted on good terms and Buffett still made a handsome return given termination fees, an appreciated stake in CEG and related other cash payment requirements. Not a bad way to lose:

For its part, MidAmerican will receive a hefty termination package. The deal calls for MidAmerican to get a $175 million termination fee. Additionally, preferred shares issued to its wholly owned MEHC Investment Inc. unit will convert, giving MEHC a $1 billion note at 14% interest and about 20 million shares of Constellation stock, representing about 10% of outstanding shares; and roughly $418 million in cash.

But the real interesting point I feel is that it seems CEG wasn't required to obtain shareholder approval for this deal. I am no expert on these kinds of details, but I would have assumed that a shareholder vote was required. It appears not to be the case as shown in this excerpt from the CEG press release below.

The companies expect to receive the necessary regulatory approvals for the acquisition of EDF Development Inc.'s interest in Constellation Energy's nuclear generation and operation business and close the transaction within six to nine months. The companies will work closely with Maryland regulators to make them fully informed of the transaction's details. Approval from Constellation Energy's shareholders is not required.

Ok, I guess that's life in the big city. Shareholders were nevertheless likely to be overall positive on the deal given previous opposition to the MidAmerican $26.5 bid as being too low. And not to imply any wrong-doing at all here, but it is still surprising, at least to this Stalwart, that such a massive change in course did not require shareholder approval. If someone wishes to clarify the situation or explain their take, then please feel free to do so.

Comments

[MILESCFA:]

"Shareholders were nevertheless likely to be overall positive on the deal given previous opposition to the MidAmerican $26.5 bid as being too low."

That's what I thought but the stock sold off hard, an expensive lesson. What I did not anticipate is that as part of this deal, the rating agencies would downgrade the company and CEG would cut it's dividend.

2008 Dec 18 09:08 AM

[Vincent Fer...:]

This is complete speculation, but the sell-off could have been due to M&A arb funds unwinding, as the stock would no longer fit their mandate. But it could have also fallen due to other concerns as well. It would be hard to know for sure. But this could be a potential reason, at least.


On Dec 18 09:08 AM MILESCFA wrote:

> "Shareholders were nevertheless likely to be overall positive on
> the deal given previous opposition to the MidAmerican $26.5 bid as
> being too low."
>
> That's what I thought but the stock sold off hard, an expensive lesson.
> What I did not anticipate is that as part of this deal, the rating
> agencies would downgrade the company and CEG would cut it's dividend.

2008 Dec 18 11:13 AM

[ATLBob:]

Once again, Buffett proves that he's human and not perfect; however, in this case: even though he loses, he wins!

Disclosure: long BRK

2008 Dec 18 01:55 PM