FORBES: Constellation Energy swings to $225.7M 3Q loss

By ERNEST SCHEYDER 11.06.08, 12:30 PM ET
NEW YORK -

Constellation Energy Group Inc., which is being bought by MidAmerican Energy Holdings Co. for about $4.7 billion, said Thursday it swung to a third-quarter loss because of volatile commodity prices and a frozen credit market.

For the period ended Sept. 30, the nation"s largest power wholesaler posted a net loss of $225.7 million, or $1.27 per share, compared with net income of $251.4 million, or $1.38 per share, in the year-ago period.

Excluding one-time items such as mark-to-market gains, the company reported earnings of 76 cents per share.

Revenue fell 9 percent to $5.32 billion, from $5.86 billion.

Analysts polled by Thomson Reuters expected, on average, earnings of 88 cents per share on revenue of $5.11 billion. Analysts typically exclude one-time items.

Company shares fell 30 cents to $23.25.

Constellation recorded a $314.1 million impairment charge to write-down the value of some of its units, including its Merchant energy business.

"We are taking active steps to adjust to a new business environment marked by declining prices, illiquid markets and scarce credit," Mayo A. Shattuck III, Constellation"s chairman, president and chief executive officer, said in a statement.

The company has put its upstream gas, coal and freight businesses on the block, and on Thursday said it would sell its Houston-based gas trading operations.

"Since the merger announcement, we have emphasized the need to reduce earnings at risk and decrease our exposure to incremental collateral posting," Shattuck said. "We have substantially reduced our economic exposure to directional commodity price risk by reducing position size and overall length of our portfolio. These activities have affected our third quarter results."

Shattuck added that those forces will also be at play during the final quarter of the year.

Constellation"s expenses rose to $5.55 billion from $5.43 billion.

MidAmerican, a unit of Warren Buffett"s Omaha, Neb.-based Berkshire Hathaway (nyse: BRK - news - people ), said in September it would buy Constellation in a cash-and-stock deal worth about $26.50 per share. The company also plans to infuse Constellation with about $1.75 billion.

Shares of Constellation have traded between $13 and $107.97 in the past 52 weeks.

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FINANCIAL TIMES: Buffett could quit Constellation battle

By Peggy Hollinger in Paris

Published: December 17 2008 02:00 | Last updated: December 17 2008 02:00

Warren Buffett, the US billionaire investor, could bow out of the battle for Constellation Energy after his MidAmerican Energy utility group said it would not try to outbid EDF of France.

Constellation"s directors were due to meet yesterday to decide whether to accept a $4.5bn offer from EDF for 50 per cent of its nuclear power generation business or go with a rival lowball $4.7bn offer from MidAmerican for the whole group.

EDF sent its formal offer around midnight on Monday after a week of talks over the details of the French company"s offer. EDF sources said they were expecting a response after the Constellation board meeting.

The EDF board met all day on Monday and is scheduled to meet again today at which it will discuss any response should one be forthcoming. It will also discuss other issues including next week"s deadline for European Commission approval of EDF"s acquisition of British Energy.

EDF offered $4.5bn for 50 per cent of Constellation"s five reactor facilities and up to a further $2bn for other non-nuclear assets on December 3, in an effort to secure its strategic position in the US with its chosen partner.

The French group owns 9.5 per cent of Constellation after creating a joint venture to build four of its new-generation EPR reactors on the US company"s sites.

Constellation was meant to become EDF"s platform to tap into the expected US nuclear revival, with a large proportion of the country"s 104 reactors coming up for renewal.

However, this strategy was thrown into doubt when Constellation fell victim to the turmoil created by the collapse of Lehman Brothers in September. The exposure of the group"s energy trading arm sparked serious liquidity concerns and Constellation was forced to accept a rescue bid from Mr Buffett at the 11th hour to avoid breaching bank covenants and bankruptcy. Mr Buffett offered an immediate $1bn cash injection and $4.7bn for the group in a cleverly structured deal that will leave him with a profit of up to $600m should EDF win the bidding.

As of yesterday afternoon, that seemed the most likely outcome, though people close to EDF said nothing was certain until the Constellation board made its recommendation.

David Sokol, MidAmerican chairman, told CNBC television that his group would not counterbid.

"The structure of the transaction [proposed by EDF] is not one we would be comfortable with," he said.

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