Merrill Lynch Eyes LDC Merger Targets
There have been 26 natural gas utility mergers announced since
1995, with 15 of them coming in the past year and seven in the
month of June alone. And there are "many more" to come, according
to a Merrill Lynch report released last week.
"It's difficult to predict exactly who's next or when lightening
will strike," but it recommended that investors keep a close watch
on AGL Resources, Washington Gas Light and Piedmont Natural Gas as
potential merger targets. "In our view, every stock in our natural
gas distribution group is a viable takeover candidate...," Merrill
"Thus far, the majority of recent transactions have been
electric purchasing gas deals. We expect that trend to continue as
utility competition accelerates. Electrics have fresh cash from
asset sales and favorable treatment on stranded-cost recovery
burning a hole in their pocket[s]. There is more cash than assets
out there, leaving a clear sellers market."
But it warned potential buyers of gas distribution assets to be
wary. "In our view, there are many over-priced deals out there,
even before regulators have taken their piece of hide. We think
there will be another shakeout in a couple of years, with a slew of
distressed companies who overpaid for acquisitions and
over-estimated the 'synergies' and their ability to keep any
savings for shareholders," the report noted.
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