TheStreet.com Staff
The huge TXU (TXU Quote - Cramer on TXU - Stock Picks) buyout is a "perfect" deal that signals all utilities are potential takeout targets, Jim Cramer said on TheStreet.com TV's Wall Street Confidential video Monday.
"If you look at what these utilities are doing, it's rather remarkable that they generate so much capital," he told Gregg Greenberg, the host of Wall Street Confidential. "We're in kind of an unregulated period" where they are able to keep raising rates. And utilities, with their strong cash flows, are enticing targets for firms eager for cash flow generating companies. Cramer said he is "amazed at how eager" the private-equity firms are to put money to work. "It's as if, if they find a target that's big, they're going to take it," he said. While Kohlberg Kravis Roberts' $25.1 billion purchase of RJR Nabisco "was way too big vs. the money then," Cramer said "this deal's not big." "There will come a time when you look at a TXU and say they didn't make a lot of money on that deal," he said. "I don't think they will make a lot of money on TXU." But in the end, Cramer said the private-equity firms are looking for consistent cash flows. "Whatever business has consistent cash flows is going to be a target because these companies don't get rewarded in this market," he said. Against the view of the public market on utilities, "these companies don't borrow nearly as much as they used to" and they have "giant cash flows," Cramer said. "This company is going to be a vehicle to go buy a lot of the utilities," he continued. "This entity is going to be the consolidator, which is why I think people should get behind this deal." Moreover, private-equity firms need to put money to work in "big tranches," Cramer said. Although they could've done 10 small deals, that's "much more work," which is why "this deal is so perfect," he said.
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