There have been 26 natural gas utility mergers announced since1995, with 15 of them occurring in the past year and seven in themonth of June alone. And there are “many more” to come, accordingto a Merrill Lynch report released last week.

“It’s difficult to predict exactly who’s next or when lighteningwill strike,” but it recommended that investors keep a close watchon AGL Resources, Washington Gas Light and Piedmont Natural Gas aspotential merger targets. “In our view, every stock in our naturalgas distribution group is a viable takeover candidate…,” MerrillLynch said.

“Thus far, the majority of recent transactions have beenelectric purchasing gas deals. We expect that trend to continue asutility competition accelerates. Electrics have fresh cash fromasset sales and favorable treatment on stranded-cost recoveryburning a hole in their pocket[s]. There is more cash than assetsout there, leaving a clear sellers market.”

But it warned potential investors in gas distribution stocks tobe wary. “In our view, there are many over-priced deals out there,even before regulators have taken their piece of hide. We thinkthere will be another shakeout in a couple of years, with a slew ofdistressed companies who overpaid for acquisitions andover-estimated the ‘synergies’ and their ability to keep anysavings for shareholders,” the report noted.

Susan Parker

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