Here’s M&A “Jeopardy.” Answer: A troubled utility with hard assets, including a stake in more than 600 billion cubic feet equivalent of proved oil and gas reserves. Question: What is a good target acquisition for Berkshire Hathaway? Standard & Poor’s credit-rating analysts disagree. They’ve put BH’s MidAmerican Energy Holdings on CreditWatch with a negative outlook. They report, “The announcement represents a sharp departure from our expectations that additional MidAmerican acquisitions would be squarely and narrowly focused on regulated, integrated electric and gas operations. MidAmerican’s willingness to acquire beleaguered Constellation reflects an appetite for risk that may be inconsistent with its 'A' category rating. About 85% of Constellation's gross margins come from trading and merchant generation assets. MidAmerican’s expertise and track record in managing such assets is limited.” The response is surprising, considering that Constellation’s E&P holdings are worth up to $2 billion on the market, and the total MidAmerican offer for the whole company is some $4.7 billion.Buffett stepped up in 2002 when The Williams Cos. was going under due to its energy-trading operations and general investor disenchantment with companies in this space (e.g., Enron, Dynegy, Aquila, El Paso Corp., et al.). Williams had outbid Shell Oil Co. just a year earlier for Barrett Resources Corp.’s more than 1 trillion cubic feet equivalent of proved U.S. onshore reserves for approximately $2.7 billion. It mortgaged these and other E&P holdings in a more than $1-billion, 364-day loan from BH in 2002 at a more than 30% interest rate. Meanwhile, BH’s MidAmerican acquired some pipeline assets from Williams. Williams paid off the loan early but still heftily. BH and MidAmerican made a steal of a deal. Thus, that S&P’s analysts are doubtful of BH and MidAmerican’s outlook for a margin off the Constellation deal is surprising. As for the S&P analysts’ outlook for Constellation, they report their BBB corporate-credit rating on Constellation remain on CreditWatch, but with “developing implications.” “While we view the announcement as a potentially favorable credit development for Constellation, the acquisition will require shareholder, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and the Maryland Public Service Commission approvals. The companies expect these will be sought over the next nine months. “Still, Berkshire's action suggests a confidence in Constellation's business in the face of tremendous negative market sentiment. MidAmerican has also indicated that it will allow Constellation to operate autonomously and pursue its long-term plans. Standard & Poor's believes that this action, buttressed by the underwriting commitment by UBS and RBS for $2 billion, will significantly ease the pressure on the company to execute on its asset divestment plans to further shore up its balance sheet.” Will Buffett and BH reel in a legendary margin again? –Nissa Darbonne, Executive Editor, Oil and Gas Investor, A&D Watch, Today,,;