For the Sage of Omaha, parting from Constellation Energy Group could be very sweet sorrow.
Despite a bevy of headlines casting Warren Buffett as the jilted party in a merger deal between his MidAmerican Energy Holdings Co. and Constellation canceled Tuesday, the famed investor is in line for billions in parting gifts.
Buffett’s Constellation consolation prizes include $593 million in breakup fees, the return of his $1 billion investment in the company at 14 percent interest, and 20 million shares, or 10 percent of the company.
Buffett rode to the rescue of Constellation in mid-September when concerns over its available cash and credit, coupled with general turmoil in the financial markets, nearly brought the company to bankruptcy.
The man described by Gov. Martin O’Malley at that time as a “white knight” will stay in the picture as one of the company’s biggest stakeholders.
“It’s not like he’s getting thrown to the curb,” said Paul Justice, who covers Constellation for Chicago-based investment research firm Morningstar. “If he had the chance to do 20 of these deals in the next year, he’d do every single one.”
Such is the power of cash when credit markets tighten — according to regulatory filings, no one but Buffett could offer Constellation the immediate cash infusion it needed to survive. The company will now pay Buffett a heavy price for that pseudo-bailout, just as they gave away half of their nuclear business on Tuesday to French firm Electricite de France to remain an independent company.
“They gave away a significant chunk of their future earnings potential,” Justice said. “They’ve been provided with sufficient liquidity for the next few years. [But] they gave up a lot, that’s the dynamics of the liquidity crunch, when you need money today you have to have it.”
But the sheer amount of Buffett’s windfall might violate state law, according to state Delegate Pat McDonough. McDonough put the total value of Buffett’s takeaways from the failed merger at approximately $4 billion, which he said violates statutes forbidding a provider of gas and electric from jeopardizing those services.
“The money that [Constellation is] taking in is almost canceled by the money going out,” he said. “This issue now becomes center stage É because this is placing the future of the company in jeopardy.”
