In the midst of the market meltdown Monday, lots of tongues were wagging about a report that Baltimore power producer and trader Constellation Energy Group Inc., which agreed to a $4.7 billion buyout by a unit of Warren Buffett's Berkshire Hathaway Inc. on Sept. 19, would file for bankruptcy.
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The report -- from trade publication SparkSpread.com, which has since
retracted it and pulled it from its Web site -- created such uncertainty
about the deal (Constellation's stock slipped to as low as $16.73 per share before rebounding to close at $23) that Constellation and the
Berkshire Hathaway unit, MidAmerican Energy Holdings Co., put out a
statement Monday afternoon that the merger was on track.
"We continue to work very closely with MidAmerican to complete the due diligence process, file the merger application with the Maryland Public Service Commission and submit the proxy to the Securities and Exchange Commission," Constellation chairman and CEO Mayo Shattuck said in a statement.
MidAmerican CEO Greg Abel said in his own statement that the company hopes to compete its due diligence within the 14-day period, and so far, it hasn't identified any issues.
"We have completed a significant amount of due diligence to date and are very comfortable with the state of affairs of Constellation," he said. "We are working expeditiously with Constellation to move the merger approval process forward."
Bond research firm Gimme Credit LLC wrote in a report Monday afternoon that if Constellation had even thought about filing for bankruptcy, it would have done something before Warren Buffett swooped in with an immediate $1 billion capital infusion and a $26.50 per share purchase price.
"Now, it is true that MidAmerican can walk away under certain circumstances, but we doubt that would happen," Gimme Credit analyst Philip Adams wrote. "There's a good utility franchise and great generating assets being acquired at a discount. A bankruptcy filing would result in CEG [Constellation] shareholders getting a lot less than $26.50 per share, and delay MEHC [MidAmerican] in acquiring those great assets. So who has a motive?"
Adams added that even if MidAmerican's due diligence found a material reduction in the value of Constellation's retail and wholesale businesses, the deal wouldn't be busted up but rather renegotiated. Wrote Adams: "There are bigger, systemic things to worry about today, not CEG." That's for sure. -
Claire Poole
