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Merrill Lynch Eyes LDC Merger Targets

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 Lynch said.

"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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