Breaking up is hard to do, and for Constellation it won’t be cheap, either.
Just as in any other divorce, the Baltimore-based company’s partner, Warren Buffett-controlled MidAmerican Energy Holdings Co., will walk away with some of Constellation’s assets if the company opts for a competing offer.
But the final decision likely won’t rest with Constellation’s board of directors. Under the terms of the merger deal with MidAmerican, Constellation must let its shareholders vote on the MidAmerican merger before proceeding with Electricite de France.
In a presentation to investors filed with the Securities and Exchange Commission earlier this week, Constellation said shareholders’ denial of the merger would cost the company $1.4 billion in liquidity including $593 million in breakup fees.
Constellation also would have to issue 20 million shares, or about 9.9 percent of its outstanding stock, to MidAmerican as well as $1 billion in debt to the company due December 2009.
A “no” vote would “likely require immediate additional liquidity actions to continue operations,” Constellation said in the presentation.
Though the company said it would have between $1.5 billion and $2 billion on hand in the event of a failure, $1.5 billion of maturing debt and a $600 million cash shortfall could pose “material challenges to continued operations” — essentially, bankruptcy.
But sources close to EDF’s offer said it contemplates the MidAmerican breakup costs as part of its pitch to Constellation, and that the company would have sufficient liquidity to walk away from Buffett and embrace EDF.
Other sources familiar with the Constellation-MidAmerican merger agreement said EDF’s offer didn’t come as a great surprise to the Baltimore company. The merger deal was structured to allow a window of opportunity for other companies to submit competing offers, they said, which is still open.
Constellation has already mailed proxy statements, including voting materials, to shareholders. A key unanswered question is how many of those votes have already been returned in favor of the MidAmerican merger.
“It could be a substantial number of people that would have voted the other way, if they knew what they know now,” said Paul Justice, an analyst covering Constellation for Chicago-based Morningstar.
