Infrastructure

Are There More Mergers on Tap in Electric Utilities?

Today marks the closing of the $32 billion merger between Duke Energy Corp. (NYSE: DUK) and Progress Energy. Duke initiated a one-for-three reverse stock split at the same time and the former CEO of Progress, who was to become the CEO of the combined company unexpectedly resigned today. Jim Rogers, Chairman of Duke, will take over as CEO.

This is the largest merger of the last couple of years in the utility sector, but there were others. Exelon Corp. (NYSE: EXC) finally completed its $8 billion deal with Constellation Energy. In April Northeast Utilities (NYSE: NU) closed its $7 billion deal with NSTAR.

All these mergers were announced last year and all closed this year. Some big players that might consider acquisitions have remained on the sidelines, but perhaps now that the regulatory dust has settled on these big deals we might see a few more attempts at consolidation. Or maybe not.

One merger that didn’t go through last year was the $9 billion deal between Entergy Corp. (NYSE: ETR) and the FPL subsidiary of NextEra Energy Inc. (NYSE: NEE). Entergy is the country’s second-largest nuclear generator, and the company has been having issues at some of its older plants. Entergy’s commitment to nuclear energy could become a millstone as opponents of nukes harass the company as it seeks new licenses and extensions to old ones.

American Electric Power Co. Inc. (NYSE: AEP) is heavily dependent on coal-fired generation and has announced the closure of several coal-fired plants rather than spend the estimated $6-$8 billion it would have cost to reduce emissions to comply with new federal regulations. Spending a similar amount on an acquisition would generate a lot of opposition, but AEP generally doesn’t pay an awful lot of attention to public criticism.

Consolidated Edison Inc. (NYSE: ED) may be interested in an acquisition if only to boost relatively poor earnings growth over the past decade or so. It’s true that the company’s 3.9% dividend yield has helped ConEd stock outperform on total return, but boosting earnings would enhance the share price for sure. Since ConEd’s failed attempt to merge with Northeast several years ago, the company has been inactive. But if it could find a good fit in the US northeast, the company could be tempted again.

As for Duke, shares are up 197% today, as a result of the reverse split. Shares closed at $23.28 yesterday and opened at $69.26 this morning. Shares are currently trading at $69.17.

Paul Ausick