EDF offers $6.5 billion for Constellation assets

PARIS/NEW YORK (Reuters) - French power company EDF (EDF.PA) unveiled a plan to pay as much as $6.5 billion for 50 percent of Constellation Energy Group Inc's (CEG.N) nuclear business and other assets in an attempt to torpedo a rival offer from investor Warren Buffett.

If successful, the bid would give 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 EDF's global expansion strategy.

EDF, which earlier this year tried to buy all of Constellation, said its latest bid valued the entire company at nearly double the offer from Buffett's MidAmerican Energy Holdings Co (MDPWN.OB).

Constellation shares jumped 10 percent to $27.55 Wednesday on the New York Stock Exchange.

EDF shares, which have lost more than 45 percent so far this year, fell 0.5 percent on Wednesday, partly on concerns the offer was too high, analysts said.

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

EDF is trying to secure European Union antitrust approval for its acquisition of British Energy Group Plc BGY.L, which it announced in September. It has also set its sights on China and South Africa.

EDF said Wednesday it sent a letter to Constellation's board, offering $4.5 billion for one-half of the company's nuclear power business, which operates five reactors on the U.S. East Coast.

It also said the deal included an option for Constellation to sell EDF certain gas, oil and coal-generation assets for up to $2 billion.

Constellation's board will review the EDF proposal, the company said, but it still recommended that shareholders vote in favor of the sale to MidAmerican.

EDF said its offer would include an upfront cash injection of $1 billion to meet liquidity concerns and valued the whole of Constellation at around $52 a share -- a significant premium to the company's closing stock price of $25.15 on Tuesday.

By contrast, the rival offer of $4.7 billion from MidAmerican, a unit of Berkshire Hathaway Inc (BRKa.N)(BRKb.N), valued Constellation at $26.50 per share.

WEIGHING ALTERNATIVES

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 problems partly because of its trading business' ties to collapsed U.S. investment bank Lehman Brothers Holdings Inc (LEHMQ.PK). Its shares fell as low as $16.70 in September, down from nearly $108 in January.

If Constellation backed out of the MidAmerican deal, it would have to issue about 20 million common shares to the company, or about 9.9 percent of its outstanding stock, and pay it about $593 million in cash.

Constellation would also have to issue $1 billion in 14 percent senior notes to MidAmerican, due to be repaid in December 2009.

"It was a convenience store deal. Constellation needed help in a hurry, and help in a hurry comes at a price," said Gimme Credit utilities analyst Phil Adams.

One Constellation investor who requested anonymity said the EDF bid was "a lot better" than the Buffett offer, estimating it valued the company between $37 and $54 a share.

Still, Dexia analyst Dieter Furniere said 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 EDF's proposal, Constellation would remain a stand-alone

company.

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

If EDF's offer proves successful, a Constellation deal could benefit Areva SA (CEPFi.PA), the French nuclear power reactor maker, in the long term, analysts said. Shares of Areva, which has a nuclear power development joint venture with Constellation, were down less than 1 percent on Wednesday amid a falling French stock market.

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

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

EDF, whose exclusive financial adviser is JPMorgan (JPM.N), plans to finance the transaction through corporate funds and credit facilities.

(Additional reporting by Matt Daily and Phil Wahba; Editing by Erica Billingham, Marcel Michelson and Jeffrey Benkoe)