Warren Buffett appears to have failed in his attempt to buy Constellation Energy Group (CEG) for 4.7 billion dollars. MidAmerican Energy, Buffett’s company, agreed to purchase CEG for $26.50 a share in September. Constellation Energy terminated this agreement yesterday and accepted an offer from Electricite De Franc(EDF) for 4.9 billion dollars. EDF will purchase 50% of Constellation Energy’s nuclear power holdings and allow CEG to remain an independent company.
I took particular interest in this transaction because I owned stock in Constellation Energy and they are my hometown utility company. You would think that Buffett would be upset about being outbid for Constellation Energy. Think again. Buffett will walk away from his attempted acquisition of Constellation Energy with a 300% return on his investment.
Buffett will receive 418 million dollars in cash, 175 million in termination fees, 460 million in CEG stock and he gets his 1 billion dollar investment back. He will also earn an additional 140 million in interest over the next year while awaiting repayment of his investment. Buffett stands to make over 1 billion dollars on his original investment in less than four months. That is a return of 300 percent on an annual basis.
The brilliance of Warren Buffett is his ability to win in just about every investment that he makes. He buys distressed companies that are selling well below their true value. Buffett has a unique ability to see opportunity where others see calamity. This explains Buffett’s investment of 5 billion dollars in preferred stock and 5 billion dollar in warrants exercisable at $115 in Goldman Sachs. And Buffett’s 3 billion dollar preferred stock investment in General Electric with 3 billion in warrants exercisable at $22.25. Buffett invested in GE and Goldman at a time when they were in desperate need of capital.
Buffett was derided in October for his declaration that he was investing in US companies when others were pulling out. He has been putting money to work while others have fled for the safety of U.S. Treasuries. Time will tell if Buffett’s thesis is correct. Warren Buffett’s recent investment purchases may look risky right now but as history shows you shouldn’t bet against him.