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Utility Mergers and Acquisitions, Part 4: Why Should Shareholders Be Skeptical?

Jun. 30, 2005 3:00 PM ET
Sandy Cohen profile picture
Sandy Cohen

Welcome to Part 4 of our discussion of the merits of what may end up being a new "hot" strategic trend: Utility mergers and acqisitions. In case I have not been clear yet,let me make it crystal clear: Generally, I do NOT think M&A (with an emphasis on the "M") is in the best interests of utility shareholders.

So ... if mergers within the industry are not in the best interest of shareholders, why is there periodic pressure from so many sides for utilities to merge? And what evidence could be cited to warn investors that healthy skepticism over announced mergers should be the rule?

In Part 1 of the exploration of the M&A theme, I briefly raised the issue of the "wave" that may be coming, and my brief view of the shareholder benefits (fewer than many believe) ... and linked some random views from different media sources (see: Part 1: A Wave of Utility M&A is Coming ... Is it Good for Shareholders?).

In Parts 2 and 3, I first cited the Bull Case and the Bear Case (Part 2), and then gave some in-depth comments on each point (Part 3) . Follow the link to read that (Just Part 3, since Part 3 provides all the points of Part 2, plus more: Utility Mergers and Acquisitions, Part 3: The Bull and Bear Cases Deconstructed).

My focus in this, Part 4 of the discussion, will be to walk you through the remarkable history of the wrong strategic choices the electric utility industry has made over the years, to put in perspective why shareholders should be incredibly skeptical whenever the executives and advisors of this industry proudly announce the next "must do" direction. Be forewarned, this post is rather lengthy, as I rant about the folly of the industry.

This article was written by

Sandy Cohen profile picture
Sandy Cohen (http://seekingalpha.com/by/author/sandy-cohen/) is an ex-sell side analyst (Morgan Stanley and Merrill Lynch) who covers utility stocks. That's become an important sector due to its recent performance and the fact that utililty stocks pay dividends. We think Sandy's work is rigorous and insightful, and we like the fact that he's willing to be genuinely opinionated. You can find his articles on the Utility Stock Blog and occasionally the Energy Stock Blog. His own blog is here (http://www.utility-stock.com/).

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