TXU Sparks Takeover Talk
This column was originally published on RealMoney on Feb. 26 at 12:00 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.
As TXU (TXU) heads to the world of private companies, the utility space will likely be re-energized by talk of more deals, either in private-equity buyouts or public-company mergers.
Such chatter will inevitably occur today, and given the industry's stable nature, the "what-if" exercise is worth considering. However, the complexities of the electric power business make big deals challenging, if not downright difficult.
RegulationUtilities have a great profile for private-equity firms: stable cash flow, predictable demand and a captive customer base, to name just three. But they also entail a significant amount of regulatory risk. Although deregulation of the power business has helped lessen some onerous regulation, most electric-power companies' core businesses remain highly regulated, primarily by state public utilities commissions and, at least to some extent, by the Federal Energy Regulatory Commission. If you wonder what that means, just ask Constellation Energy (CEG) and FPL Group (FPL). In October, the two companies walked away from a merger that had been in the works for nearly two years because of regulatory hassles. In addition, Exelon (EXC) and Public Service Enterprise Group (PEG) canceled their proposed merger for similar reasons. Of course, some deals have been completed -- such as Duke Energy (DUK) and Cinergy -- but plenty of uncertainty exists when it comes to public utility mergers. However, private equity's entrance into the mix may present new opportunities. It is too early to determine what type of hurdles the TXU deal will face from regulators, but objections are already being assuaged. The new TXU said this morning that it will lower consumer power rates and significantly reduce its plan to build new coal-fired generation plants. In addition, the private version of TXU is courting heavy hitters for its board, including former Secretary of State James Baker, former EPA Commissioner William Reilly and former Commerce Secretary Donald Evans. Furthermore, the press release announcing the deal talks up the new company's commitment to the environment and sustainable energy.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV