Infrastructure

Utility M&A Wave Goes Into Overdrive (DUK, PGN, DYN, IEP, NU, NST, XLU, AEP)

Another deal has been confirmed in the land grab for utilities.  Duke Energy Corporation (NYSE: DUK) has confirmed fresh reports that it was acquiring Progress Energy Inc. (NYSE: PGN).  Duke’s $23.5+ billion market cap compares to roughly $13.1 billion at Progress.

On Friday afternoon came federal approval for the pending FirstEnergy Corp. (NYSE: FE) and Allegheny Energy Inc. (NYSE: AYE) merger.  The firms still have to go through state approvals to secure the merger.  FirstEnergy’s $4.7 billion deal comes to paying $27.65 per share to Allegheny holders.

Progress is valued at $13.7 billion or $46.48 per share, but this is a stock-for-stock deal.  Progress Energy holders will receive 2.6125 shares of common stock of Duke Energy per Progress share.  Duke Energy will assume over $12 billion in Progress Energy net debt.

Duke Energy holders will own about 63% and Progress about 37% of the new company.  Duke also expects to effect a reverse stock split before the merger and the exchange ratio will be adjusted.

Another pending deal in the world of utilities is Dynegy Inc. (NYSE: DYN), where Carl Icahn’s Icahn Enterprises, L.P. (NYSE: IEP) is in a deal to acquire the company if a go-shop provision does not generate a higher buyout price.  Dynegy’s buyout is a tender offer that will follow with a formal merger that pays Dynegy shareholders $5.50 per share in cash.

There is also the pending Northeast Utilities (NYSE: NU) merger with NSTAR (NYSE: NST) announced back in October.  The components inside the Utilities Select Sector SPDR (NYSE: XLU) appear to be getting fewer and fewer.

Duke shares are down 1.6% at $17.50 against a 52-week range of $15.47 to $18.60 with a 5.5% dividend yield; Progress shares are down 1.6% at $43.98 against a 52-week range of $37.04 to $45.61 with a near 5.5% dividend yield.

Duke and Progress highlighted the premiums here, but shareholders may want more leverage other than just larger scale.

American Electric Power Co., Inc. (NYSE: AEP) is so far not in the merger mania.  It was recently voted as one of our top ten stocks to hold for the next decade.

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JON C. OGG