Thursday, September 18, 2008

Bingo! Buffett's MidAmerican Energy to Buy Constellation (CEG, BRK.A)

Damn those Omaha boys move fast.
From Bloomberg:
- Warren Buffett's MidAmerican Energy Holdings Co. agreed to buy Constellation Energy Group Inc. for about $4.7 billion, snapping up the largest U.S. power marketer at less than half its market value prior to this week.

The cash deal is worth $26.50 a share, the companies said today in a statement. That's 7 percent higher than yesterday's close. The stock plunged 58 percent this week on concern turmoil in financial markets would wreck Constellation's energy-trading business.

``That's a big haircut,'' said James Halloran, who helps manage $34 billion in assets, including Constellation shares, at National City Private Client Group in Cleveland. ``The assets are valuable.''

Constellation hired Morgan Stanley and UBS AG to explore strategic alternatives as its shares plunged this week. Lehman Brothers Holdings Inc.'s bankruptcy, the sale of Merrill Lynch & Co. and the government takeover of American International Group Inc. heightened investor concern over Baltimore-based Constellation's ``undercapitalized'' trading business, according to analyst Paul Fremont of Jefferies & Co. in New York.

MidAmerican, based in Des Moines, Iowa, and Constellation expect to complete a definitive merger agreement later today, the companies said. Once that's done, Constellation will issue $1 billion in preferred equity yielding 8 percent to MidAmerican, according to the statement.

Capital Needed

Constellation Chief Executive Officer Mayo Shattuck had been seeking a partner to share the risk in the company's wholesale energy-trading business....MORE

Mr. Buffett is picking up some very nice assets and is confirming our earlier thinking on the value of the sector:

Utilities and pipelines good during downturns and good during recoveries (BRK.A; TRP)
....*Berkshire Hathaway owns MidAmerican Energy Holdings which owns something like 17,000 miles of pipeline. In one of those instances where Enron wrote the playbook, MidAm bought the bulk of the pipeline from Dynegy which purchased it from ENE.

Berkshire adds NRG stake to portfolio (BRK.A)

I frequently think that keeping tabs on Warren Buffett is akin to what Kremlinologists did during the Cold War: figure out what a shadow means in the context of other shadows you've glimpsed or maybe, imagined. The man is a master at not tipping his hand:
...In all three transactions, Berkshire Hathaway sent the share-sale disclosures by regular mail, which didn't arrive in Hong Kong until nearly two weeks after the sale took place. That arrangement is acceptable under Hong Kong's securities law, though the Securities and Futures Commission said after Berkshire Hathaway's second disclosure last week that it would review the rules and consider making electronic disclosure compulsory.
...I am amused by the snail-mail notification bit. I don't think I'd win playing poker or bridge with Mr. Buffett, whether table-stakes or no-limit.
(well especially no-limit)
From the 1987 Letter to the Shareholders of Berkshire Hathaway:
In a world in which big investment ideas are both
and valuable, we have no interest in telling
competitors what we are doing except to the
extent required by
law. We certainly don't expect
others to tell us of their
investment ideas. Nor
would we expect a media company to
disclose news of
acquisitions it was privately pursuing or a
to tell his competitors about stories on which he is

working or sources he is using.

In "Buffett succession plan at Berkshire gets a twist (BRK.A)" we had this clue:
David Sokol, widely considered among the top candidates to eventually replace Buffett as chief executive of Berkshire Hathaway Inc. announced on Tuesday that he plans to step down as chief of Berkshire's utility unit MidAmerican Energy Holdings Co. He will remain chairman....
...Sokol was not immediately available for comment. He told the Omaha World-Herald that ending his 17-year run as MidAmerican chief executive will free him to work on acquisitions. MidAmerican operates several utilities and natural gas pipeline companies, and runs HomeServices of America, the No. 2 independent U.S. real estate brokerage.
In "Warren Buffett has Wind- New: 100.5 MW Worth, Total: 1231 MW (BRK.A)" we got another pointer.
Today MarketWatch informs us:
The investment vehicle of legendary investor Warren Buffett took a stake in NRG Energy Inc. in the second quarter.
Berkshire bought 3.24 million shares in NRG in the second quarter, worth $139 million. While NRG's stock was down 18.7% this year at the start of trading, the energy sector is considered a good investment by money managers right now. See full story
NRG shares rose 4% to $36.69....MORE