, the nation's largest electric generator, will offer 20% of its unregulated subsidiary in an IPO this fall and spin off the remainder to Southern shareholders next year. Southern
hopes the move will highlight its unregulated business, while unlocking value for shareholders and re-energizing its sluggish stock price.
, or SEI, focuses on wholesale power generation in the U.S. and abroad, as well as power trading and marketing through its energy and marketing subsidiary, in partnership with
SEI has more than $13 billion in assets and reported $328 million in net income in 1999. The company controls 13,000 megawatts of generation in 10 countries.
A statement issued after the market closed Monday said Atlanta-based Southern's board is committed to maintaining and growing its current dividend of $1.34 a common share, and has set an earnings-growth goal of 3% to 5% per year after the spinoff.
The core of Southern will remain a regulated utility, something CEO Bill Dahlberg finds attractive. "Southern Company will continue to concentrate on the business we know best, in the region we know best and with the customers we know best," he said in a statement. "Southern Company's traditional business is among the strongest in the industry. The separation also will enable each company to focus on its core strengths."
Although Southern ranks as one of the top unregulated generators of power and among the top five marketers of gas and electricity in the U.S., its stock has continued to trade more in line with traditional regulated utilities, as opposed to unregulated energy companies such as
earlier this year, Dahlberg noted that such a move was likely. "We are looking for ways to create value for our shareholders," he said. In the past 12 months, while Enron stock gained 92% and AES jumped more than 45%, Southern stock has lost nearly 5% of its value.
Southern will be the first major utility to spin off its unregulated business, although others are assessing options. "I think you will see other utilities move quickly now that Southern has started the ball rolling," said one utility fund manager who holds a position in Southern and was somewhat surprised by the timing. "I expected this to happen at some point, just not quite this soon. The market is likely to give them credit for it tomorrow morning," he added.
Other companies likely to look closely at separating their unregulated business from their traditional business include
Constellation Energy Group
Entergy has been rumored to be looking for a partner for its trading and marketing business over the past several months. Entergy officials have not returned calls seeking comment. "Traditional utilities are looking for ways to create value of their unregulated business for shareholders," said the fund manager. "This is a pretty good way to unlock value."
Sources say the offering will be co-led by
Morgan Stanley Dean Witter
. Southern also annouced first-quarter earnings up 9% over last year. The company reported 38 cents per share for the quarter ended March 30, vs. 32 cents in the same period a year ago.
Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, Edmonds was long Southern, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback at