French power company in hunt for Constellation

The late bid for half of Constellation Energy's nuclear business also puts Electricite de France SA in direct competition with an American icon, Warren Buffet.

Buffet's MidAmerican Energy Holdings Co. swept in to acquire Constellation Energy three months ago as the company, with significant nuclear power holdings, struggled to find cash.

While angry shareholders have already filed at least half a dozen lawsuits, saying MidAmerican's $4.7 billion bid for the entire company is cheap, EDF faces its own hurdles in gaining a foothold in the U.S. nuclear industry.

"This is going to be held against them," said Angie Storozynski, an analyst with Macquarie Research Equities in New York.

Storozynski said MidAmerican could raise a nationalist argument against the French offer, stoking similar concerns as those over a 2006 plan by Dubai-owned DP World to manage six of the largest ports in the United States.

"The French government is a shareholder of EDF," Storozynski said. "So it's not only a foreign entity buying nuclear assets, but it's also indirectly a foreign government getting partial control of nuclear assets in the U.S."

Altogether, Constellation contributes roughly 5 percent of the total nuclear generating capacity in the United States.

Even if accepted by Constellation, the deal would need approval by the U.S. Nuclear Regulatory Commission. The federal government bans foreign companies from taking full ownership of a nuclear plant. That means that technically, the EDF deal could be approved.

"The NRC must be able to maintain authority over the civilian use of nuclear materials," NRC spokesman Scott Burnell said.

The NRC would make sure decisions regarding plant safety remain in control of a "U.S. entity," Burnell said.

In the late 1990s, British Energy helped found AmerGen Energy Co., gaining 50 percent ownership of nuclear plants in Middletown, Penn., Oyster Creek, N.J., and Clinton, Ill. It sold its stake in 2003 for $277 million.

NRC spokesman Neil A. Sheehan said that during British Energy's tenure as an American nuclear power plant operator, it gave regulators few problems.

"They had Americans in all the executive positions," Sheehan said. "We didn't identify any conflicts."

Like British Energy, EDF plans to leave key operating issues to U.S. citizens.

Constellation said in a regulatory filing that security committee would oversee nuclear and security issues. Constellation would pick three of the committee's five directors, and EDF would pick two. In addition, Constellation said at least four of the five committee members would be U.S. citizens.

"EDF expects it can receive the necessary regulatory approvals for the acquisition of its interest in the nuclear generation and operation business and close the transaction within six to nine months, upon Constellation's termination of its proposed transaction with MidAmerican Energy," the company said.

Constellation said it was reviewing the offer. Its shares jumped 10 percent, or $2.55, to $27.70 in December 3 trading.

If Constellation ditches Buffett's offer, there is a $175 million break-up fee plus interest.

A spokeswoman for MidAmerican declined to comment. MidAmerican is based in Des Moines, Iowa, and is controlled by Buffett's Berkshire Hathaway, which is based in Omaha, Neb.

If it succeeds, EDF may avoid the hurdles over foreign ownership of U.S. nuclear facilities, and would further the companies goal of expanding outside of France.

In September, EDF said it would buy British Energy Group for $18.5 billion.

The bid for Constellation is EDF's "last chance to change minds, not of Constellation's management, but of its investors," said industry analyst Peter Wirtz of WestLB Research based in Dusseldorf.

He said EDF stands little chance of succeeding despite a "clearly very attractive offer" because at a time of global economic and financial upheaval, investors are more likely to be lured by MidAmerican's complete takeover bid than by the more complex offer of EDF.

Yet shares in EDF sank following the announcement, falling 5.6 percent to 42.07 euros ($53.42) in early afternoon Paris trading amid investor fears that a bruising takeover battle may be brewing.

EDF's offer includes a $1 billion "upfront" cash infusion in Constellation, which would counter one of the strongest motivations for shareholders who were mulling the MidAmerican bid.

MidAmerican had also offered $1 billion in cash up front and on December 2, Constellation said it likely would have filed for bankruptcy protection without it.

Constellation's nuclear business includes three nuclear power stations with five reactors located in Maryland and New York. Nuclear power accounts for 61 percent of Constellation's total electricity generating capacity of 8,700 megawatts.

Constellation's non-nuclear assets include coal- and natural gas-fired electric plants, as well as oil and renewable energies such as solar, geothermal and hydro power.

Constellation Energy Group Inc. warned in a U.S. regulatory filing that unstable market conditions make the deal with MidAmerican critical.

The EDF offer includes an option to sell up to $2 billion of "non-nuclear generation assets" to the French company in a deal that could close in six to nine months.

"Constellation Energy's Board of Directors has not withdrawn, modified or qualified its recommendation that shareholders of Constellation Energy vote in favor of the merger with MidAmerican," the company said.

Constellation shareholders are scheduled to vote on the proposed MidAmerican deal on December 23.