Scarcity of Suitable Gas Partners Driving M&As
The pace of announced mergers and acquisitions (M&A) has
picked up steam in the last few weeks because electric utilities
are realizing that the pool of potential natural gas targets is
quickly dwindling, according to a Merrill Lynch & Co. report.
"We expect M&A activity to continue and to possibly even
accelerate as the list of potential partners becomes scarce...Large
electric utilities hoping to become national energy players and
compete with the Enrons, [CMS Energy] and the Dukes of the world
are facing the very real possibility that the pool of potential
partners may be decreasing," the investment company said in a Feb.
Merrill Lynch Vice President Rebecca Followill likened the
merger pace to the children's game of musical chairs. "It begins
very slowly. But as the chairs start to get pulled away, the
excitement [and pace build] because only so many chairs are
remaining." The excitement's especially acute now for the big
electrics - such as Southern Co. - that haven't yet picked from the
diminishing pool of gas partners. This "scarcity factor" is what's
driving the current "frenzied pace" of M&A activity, she said.
In recent weeks, five of the companies followed by Merrill Lynch
have been involved in M&A activity. "Three as targets [KN
Energy, Consolidated Natural Gas and Public Service Co. of South
Carolina] and one as an acquirer [Sempra Energy]," and for an
"encore" there was a third-party competitive bid by Southern Union
for Southwest Gas Corp.
Electric companies "will continue to be the major buyers of
natural gas assets," according to Merrill Lynch. As to potential
suitors, Followill said, "just look to the people who are divesting
large amounts of generating assets. They will have the cash to
Gas companies that are likely to be targets - or possibly even
suitors - are Columbia Energy, Equitable Resources, National Fuel
Gas, Questar Corp., Coastal Corp., El Paso Energy and Sonat,
according to Merrill Lynch. "With the entire energy sector out of
favor due to the significantly warmer-than-normal temperatures,
depressed commodity prices and the general negative investor
sentiment, we believe many of these companies can be bought for
And with these M&As will come a smaller industry. About 10
years ago there were about nine publicly traded pipelines and 11
integrated gas companies; today there are five pipelines and four
integrated companies, according to Merrill Lynch. "We continue to
believe the group will consolidate further."
©Copyright 1999 Intelligence Press, Inc. All rights
reserved. The preceding news report may not be republished or
redistributed in whole or in part without prior written consent of
Intelligence Press, Inc.