Thursday, September 18, 2008

Buffet buys Constellation

Turns 'make v. buy' on its head

Warren Buffett, who gave up on his plans to build a greenfield nuclear power station in Idaho, opted today to buy an entire nuclear utility - Constellation (NYSE:CEG).

The utility owns and operates the Calvert Cliffs site and more importantly is aligned with EDF and Areva (Unistar) to build a fleet of EPRs across the U.S. Constellation has five reactors at three nuclear plants: Nine Mile Point and R.E. Ginna in New York, in addition to Calvert Cliffs in Maryland.

Constellation has also announced plans for Calvert Cliffs 3 and a third unit at Nine Mile Point, both to to be built by Unistar. A COL was filed with the NRC for Calvert Cliffs 3 last January. A COL is expected for Nine Mile Point later by the end of 2008. Both projects will build American versions of Areva's EPR.

The deal to buy Constellation will be done through Buffet's MidAmerican Energy Holdings of Des Moines, IA, for cash of approximately $4.7 billion, or $26.50 a share. It's a bargain at this price considering the amount of nuclear generation capacity he got for it. In 2005 Florida Power & Light offered $12 billion for the company in a deal that did not go through.

The firm's stock dropped like a rock in recent weeks, because of credit problems with its energy trading business, which put it in Buffet's sights. The stock had been trading at twice the price Buffet paid for it just a month ago.

He beat out a plan by Electricite de France to add $500M to its stake in Constellation. The firm had previously acquired a 9.5% interest in Constellation. The two firms have a joint venture in any case, but on the U.S. end Mr. Buffet's MidAmerican is now calling the shots. What's interesting is that he also now has a tiger by the tail with Unistar's plans for new builds.

The Bloomberg wire service has a detailed financial analysis of the situation.

The Wall Street Journal Environmental Capital blog also has some comments and a vigorous discussion in response.

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1 comment:

Joffan said...

Ha, I wonder if all the anti-nukes who pushed the idea that Buffett got out of nuclear power, demonstrating its economic unworthiness, will now be humbly confessing their mistake....

But I'm not holding my breath.