The new hot topic in the electric utility industry is M&A, mergers and acquisitions. The newest term being thrown around is "mega-utility." The talk of town is which will be the next big utility combination. But is this good for shareholders of utilities?
Where should I even begin? It seems you cannot go more than 2 days without seeing a reference to the possibility of utility M&A from either Wall Street analysts, investors, Warren Buffet, or any of many media outlets.
And it is not like the talk is without merit, after all. Utilities have a long track record of being stampeded into the next hot thing by its advisors (investment banks who earn big fees from mergers, and management consultants who also earn big fees from evaluating the strategy and the cost savings). And generally the utilities are stampeded into the next hot "strategic" thing at the peak, and after getting pummelled, exit at the trough.
My general view about utility M&A? I don't like it. Sure, there are some mergers that make a lot of sense. And sure, shareholders sometimes benefit, as well. But generally, my opinion is that if you take one pile of crap and combine it with another pile of crap, you just end up with ... a larger pile of crap.
And I read somewhere years ago that the primary reason for most mergers can be spelled ou in just 5 letters: E-G-O-W-2. Ego of the CEO's who may want to run a bigger company, and the greed of senior executives who want to make and be paid more money. Neither reason seems sufficient to justify a wave of mergers.
I am going to stop here for the moment. Below I will post some random media sightings talking about utility mergers. But before I do that, I want to set up some articles thast will be coming. This is just Part 1. I will also put together a more detailed critique of utility mergers and strategic moves (using a historical perpective). I will also put together a bull and bear case for utility M&A. As a part of either of those, or as a standalong piece, I will review an EXCELLENT piece on M&A in the utility industry just issued by CSFB's Dan Eggers today ... but I want to give his piece a chance to circulate before commenting on it (in fairness to his work).
So, I googled "eletric utility mergers." I will provide the link to just a sampling of some of the articles on the internet I saw. This does not even include 2 articles by Rebecca Smith of the Wall Street Journal done in the last 2-3 weeks, or an article in the New York Times, as I could find neither link.
- Masson's Blog on Indiana Merger Issues
- Indy Star Opinion Piece on Utility Mergers
- Perspectibve Article on Balancing Regulatory Issues
- EEI Thinkpiece from 2001
- MSN Opinion Piece from Jim Jubak ... 6/05
- Milwaukee Journal Sentinel Article on Recent Merger trends ... 5/29/05
- For another, different perspective: From Black Energy
- Reuters and Yahoo on PUHCA Repeal and Utility Consolidation
- Article on the recent SEC ruling on the 2000 AEP Merger
The above links are just few, and may give a little bit of a flavor as to some of the issues. Look for the next parts of this theme on this blog over the next few business days.