Sept. 18 (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 in New York trading on concern turmoil in financial markets would wreck Baltimore-based Constellation's energy-trading business.

``Warren's got the cash and he's got the platform to fold it into at MidAmerican Energy,'' said Greg Phelps, who oversees $3.5 billion at MFC Global Investment Management in Boston.

MidAmerican, which has utilities in the U.S. Midwest and West, will gain three nuclear plants and other power stations in the East, as well as Constellation's Baltimore Gas & Electric unit. Greg Abel, MidAmerican's chief executive officer, said his company was already familiar with Constellation's assets and was able to pull the deal together in 48 hours.

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

Constellation will raise cash by issuing $1 billion in preferred equity yielding 8 percent to Des Moines, Iowa-based MidAmerican, according to the statement.

Credit Concern Eased

That new capital will resolve concerns by Standard & Poor's over Constellation's creditworthiness, said James Halloran, who helps manage $34 billion in assets, including Constellation shares, at National City Private Client Group in Cleveland.

S&P said yesterday it was evaluating Constellation's BBB credit rating, the second-lowest investment grade, with the outcome resting in part on whether the company could raise $1 billion in as little as a week.

Constellation fell 57 cents to $24.20 in New York Stock Exchange composite trading. Class B shares of Buffett's Berkshire Hathaway Inc., based in Omaha, Nebraska, rose $85 to $4,250.

``With the deep pockets Berkshire Hathaway's got, credit risk will be a thing of the past for the trading business,'' said Phelps of MFC Global.

`Wonderful Steward'

Berkshire Hathaway has the highest of 10 investment-grade credit ratings by both S&P and Moody's Investors Service. S&P rates MidAmerican at A-, four levels above junk status.

``MidAmerican has been a wonderful steward of its energy assets and the acquisition of Constellation Energy, when completed, will prove beneficial to all constituents,'' Buffett said today in the statement.

Buffett, 78, built Berkshire Hathaway by investing in out- of-favor securities and buying businesses whose prospects and management he deemed superior. He disclosed a 1.4 percent stake in U.S. power producer NRG Energy Inc. in a regulatory filing last month.

Earnings from Berkshire's energy and utilities unit were $208 million in the second quarter, a decline of 10 percent from a year earlier.

Berkshire Bought MidAmerican

Berkshire bought 85 percent of MidAmerican for $1.7 billion in 2000 and later acquired the rest. The unit now operates regulated utilities in 10 states, plus the U.K. It also owns plants in Australia and the Philippines, as well as pipeline operator Northern Natural Gas.

U.S. nuclear plants like the three owned by Constellation have become more profitable in the past year as power prices rise and costs of competing generation fuels increase.

``Warren was looking to buy nuclear plants at dirt-cheap prices and now he has them,'' Phelps said. ``They deliver positive cash flow from the first moment you own them.''

Constellation CEO Mayo Shattuck III had been seeking a partner to share the risk in the company's energy-trading business. Shattuck, 53, told investors at a meeting last month that Constellation would sell natural-gas production assets to raise as much as $1 billion, improving its ability to post collateral for energy trades.

French Suitor

Electricite de France SA, Constellation's top shareholder, was considering buying a larger stake or the whole company, the Wall Street Journal reported yesterday. The Paris-based power producer, which is controlled by the French government, missed out on the deal, a person familiar with the matter said prior to the announcement of the takeover by MidAmerican.

Florida's FPL Group Inc. agreed to buy Constellation for $12.4 billion in 2005. Maryland lawmakers scuttled that deal.

The sale to MidAmerican will require approval from the Maryland Public Service Commission, said Shaun Adamec, a spokesman for Governor Martin O'Malley. He declined to comment further on the deal.

State regulators and lawmakers may be more receptive to the latest sale agreement, said Michael Worms, an analyst at BMO Capital Markets in New York.

Approval Expected

``Given all the concerns about Constellation's non- regulated businesses now, I'd think the regulators may be a bit more accommodative than they were back then,'' Worms said.

MidAmerican's Abel said he thinks the transaction will be well received in Maryland.

``Constellation will continue as the business it is today,'' Abel said in a telephone interview. ``Baltimore Gas & Electric has been around for 200 years, and with Berkshire as an owner, that insures it will be around for another 200 years.''

Shattuck became Constellation's CEO in 2001 after a career in investment banking, most recently as head of Deutsche Bank AG's U.S. securities unit.

Constellation derived 83 percent of its revenue and profit last year from its so-called merchant energy business, which includes energy trading and power-supply contracts with large electricity users.

Constellation would have to pay a $175 million breakup fee to MidAmerican if it accepts a higher offer, according to a public filing.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net.

Last Updated: September 18, 2008 16:19 EDT