Entergy Moving Closer to Enexus Stock Spin-Off

As Entergy (ETR) moves closer to it stock spin-off of 6 nuclear power plants to form the new corporation to be called Enexus, it appears that whether it seems like a good deal may depend on where you are standing. The Vermont Times Argus has run an article about the spinoff that discusses what Vermont regulators see as potential problems for them in the deal.

The question they and New York regulators are asking is whether Enexus will have enough capital to keep the promises that were made to them initially on what will happen to the plants when they are no longer operating. That is a legitimate concern, but from the perspective of potential investors in either or both of the companies involved it is more an ethical than a financial issue, (unless of course you live in Vermont and fear your tax dollars may be involved in making the deal work out.)

From our perspective the questions are

• will this spin-off make the parent Entergy stronger and better able to grow earnings, and
• will the spin-off stock be positioned to do the same?

They are dividing the company with some logic — regulated electricity generation vs. open market generation – but I don’t know enough about the industry to know whether this is such a great difference that it sets either portion free to achieve more than they would together. If you have a few minutes for some research, you’ll find everything that is publicly known in the SEC Information Statement about the spin-off.

It would seem that having a regulated portion of the company grinding out steady, reliable cash flow would provide a foundation for the more volatile non-regulated business to weather the ups and downs of that portion of the energy market, but maybe not if any investors in your company know that you are on the hook for a big, uncertain clean-up down the road. I do not know.

Fortunately, we don’t have to figure that out. We just have to remember that spin-offs often (not always) provide a reason for a market beating move in stocks and then watch for a move that confirms it in the particular case.

And, of course, we have to fight off the urge to be smart and/or prove we can predict the future and just focus on making money. The tendency of spin-off stocks and parent company stocks to outperform the market and their sectors is enough to put them on our watchlists.

Comments

[john s. gordon:]

as an owner of vermont residential real estate i have concern about the future tax implications of this.
. jack

Jul 20 09:06 AM