Just before the market close yesterday, news broke that Electricite de France SA, also known as EDF, was once again interested in Constellation Energy Group (CEG). As you might recall, MidAmerican Energy Holdings, a Berkshire Hathaway (BRKa) subsidiary, is in the process of buying Constellation Energy for $4.7 billion or $26.50 a share.
Constellation Energy Group is a Special Situations Real Money Portfolio holding that I’ve written about in the past. The last time I mentioned the stock, I was lamenting my greedy limit order to sell Constellation Energy Group for $26.30 per share and how I missed selling those shares by a just a few cents back in October. I’ve actually kept that sell order for $26.30 it almost hit yesterday when the EDF news broke as the market was closing.
Thankfully, that order wasn’t filled. Apparently, my greedy limit order served me well this time. The Wall Street Journal is reporting this morning that EDF’s offer is to buy part of Constellation Energy Group for $6.5 billion. The offer includes a cash infusion of $1 billion in exchange for preferred shares, a 50% stake in CEG nuclear power plants for $4.5 billion, and up to $2 billion in non-nuclear power assets. The deal is estimated to value Constellation Energy Group shares at $52.
If shares rise to anywhere near close to $52, I would stand to make a nice profit since my last CEG purchase price was $22.30 a share. I just check the premarket quote for CEG at NASDAQ and it shows the last trade this morning at $30.65. I think I will remove my limit order and wait to see how high CEG pops this morning before taking further action.
Even though EDF doesn’t believe their will be regulatory problems buying into CEG, I highly doubt that is the case. The Puget Energy (PSD) buyout I’m also playing has been hung up by the Washington State government for weeks now. I can only imagine how long the EDF deal will take if it happens. On a positive note, the EDF deal doesn’t involve private equity partners this time, isn’t conditioned on raising funds or due diligence. It appears EDF really wants Constellation so they can protect their joint venture investment with Constellation to build and operate new nuclear power plants. If EDF offer is not accepted, EDF could see $100 millions lost on their CEG investment (made at around $60 a share) when the MidAmerican buyout is made.
As you can see, every once in a while special situation investing can be exciting. Check out Fat Pitch Financials Contributors Corner for my complete list of current and past special situations that I’ve looked into over the past four years. I think you will find the low cost of the subscription well worth the investment.
Disclosure: I own Constellation Energy Group and Puget Energy at the time of this post. I may sell CEG shortly. I do not current own shares of Berkshire Hathaway.