MERION, Pa., May 30, 2013 /PRNewswire/ -- On May 29, 2013, MidAmerican announced that they have reached a definitive acquisition agreement whereby MidAmerican will acquire NVE, an energy holding company serving approximately 1.3 million electric and natural gas customers in Nevada. Under the terms of the agreement, MidAmerican will purchase all outstanding shares of NVE's common stock for $23.75 per share in cash. The transaction has an enterprise value of approximately $10 billion.
Premised on a review of publicly available documents, the proposed $23.75 per share consideration undervalues NVE. First, NVE has a current annual dividend yield of 3.6% and a current dividend payout ratio of 50%. NVE has seen its net income increase by 54% over the last five years even though its revenue has decreased by 15%. NVE has increased its dividend each of the last five years, and has increased payments by an impressive 18% annualized over this same time period. NVE's low payout ratio coupled with its past commitment to increased dividend payments should lead to increasing dividend payments in the future as well.
Second, on Feb. 7, 2013, NVE, announced that its board of directors declared a cash dividend of $0.19 per share, payable on March 20, 2013 to shareholders of record on March 5, 2013. This represents a 12 percent increase compared to the most recent quarterly dividend of $0.17 per share, paid on December 19, 2012.
Third, while the $23.75 per share cash price represents a premium of 23%, the stock was trading as high as $21.63 less than a month ago. The utility sector has been under pressure of late. In fact, at one point today the Utilities sector was down more than 10% from its April 30, 2013 high, putting it into official "correction territory" according to certain analysts.Fourth, recent earnings were solid, and management touted meeting the 2013 predictions and related that major projects were on track. "Results for the first quarter were in line with our expectations. We are on track to achieve our 2013 earnings guidance range of $1.25 to $1.35 per share," said Michael Yackira, president and chief executive officer of NV Energy, Inc. "In the second quarter, we'll seek regulatory approval to combine our two utilities, make a required rate filing for our northern subsidiary and manage other key projects while keeping a sharp focus on our top-priority job: providing safe, reliable and affordable electricity to our customers." Finally, the Company recently reported other notable items including: (i) NV Energize smart grid project is over 95% complete; (ii) One Nevada (ON Line) transmission project remains on schedule; (iii) Nevada Legislature considering NVision: a plan to reduce reliance on coal plants, reduce greenhouse gas emissions and add gas-fired and renewable capacity; and (iv) credit ratings upgraded by Fitch Ratings.