DealZone

Going Nuclear

December 3, 2008

It is said that all that glitters is not gold. Keep that in mind when considering the bidding war heating up the nuclear power business. France’s EDF has offered $6.5 billion for half of Constellation Energy Group‘s nuclear business and some other assets, trumping Warren Buffett’s bid of $4.7 billion for all of Constellation.
 
If plummeting demand for everything from new cars to tin foil could fell BHP‘s monster bid for Rio Tinto, why wouldn’t it weigh on demand for energy? While nuclear power has regained some favor as a cheap, relatively clean alternative to nasty fossil fuels, is it really safe to expect consumers to ramp up electric heat this winter, and air conditioning next summer, when they are worried about losing their jobs?
 
And today brings more evidence that the lengthy, torturous bid process BHP endured before walking away from Rio Tinto may have saved it from dealing with a disastrous downturn in demand. Freeport McMoran, which bought Phelps Dodge for $26 billion two years ago, slashed its dividend this morning after raising it only four months ago.  
 
Constellation shares rose nearly 20 percent to over $30 this morning, but that is still well below the value of the EDF bid — $52 a share. Perhaps investors aren’t quite so warm and fuzzy toward nukes after all.

* Australia said it is open to a $5.9 billion merger between Qantas Airways and British Airways as long as it’s not a takeover, sending the Australian carrier’s shares up nearly 10 percent.

* A Japanese unit of Prudential Financial plans to bid for two Japanese life insurers put up for sale by American International Group, people familiar with the matter said.

* Investment funds of Wall Street banks Goldman Sachs and Morgan Stanley and private equity giant Bain Capital plan to invest a combined at least $30 million into a Chinese movie distributor soon, top boss of the distributor Poly Bona told Reuters.

* The Irish government said it would consider Ryanair‘s new offer to buy rival airline Aer Lingus, in which the state holds a 25 percent stake, but it will be careful to preserve competition.

* Debt-laden Telecom Italia, Europe’s fifth-biggest telecoms provider, will shed assets worth up to $3.82 billion and cut another 5 percent of its workforce in a bid to slash borrowings and trim costs amid a weak economy.

* Two investors in Irish Continental Group said they were in talks about a possible offer for the company, owner of Irish Ferries, reopening a bidding war between competing shareholders with blocking stakes.

* Georgia has sold the remaining 49 percent of its Black Sea port of Poti to RAK Investment Authority of the United Arab Emirates for $65 million, its deputy minister Vakhtang Lezhava told Reuters.

* Government-owned Nakheel Properties, developer of Dubai’s palm-shaped islands, is not in discussions over the sale of company and has no immediate plans to cut more jobs, the chief executive told Reuters.

* Swedish oil and gas group Lundin Petroleum has agreed to sell its 9.2 percent stake in Revus Energy to Germany’s Wintershall, helping to clear the way for Wintershall’s takeover of Revus.

(Reuters photo: Vincent Kessler)

Comments
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Indeed, when it comes to the nuclear industry, all that glitters could very well turn out to be dross. Warren Buffett might decide that he’s well out of it, as he did earlier this year when he pulled out of plans for a nuclear energy facility in Payette County, after the company spent $13 million researching the viability of the location.

The current hype about nuclear is sounding a bit desperate – as aging reactors reach their use-by date, and the new ones – AREVA’s troubled project in Finland – and the foundering GNEP plan in USA – are looking like expensive lemons.
And – it all depends on tax-payers copping the risks, as no insurers will, and of course, tax-payers into the unforseeable future paying for the wastes.

 

Warren Buffett likes to say he only invests in businesses he understands, and for a strategic buyer like EDF, this one is a no brainer. Christina raises an interesting point about insurers’ ability to take on such risk – insurance is certainly a business that Buffett understands.

 

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