Utilities

Bankrupt toll road leaves taxpayer sitting pretty

30 Sep 2014

Private investors in a 157-mile Indiana toll road are set to be wiped out in bankruptcy court – but only after they sunk millions into new lanes and tolling technology. It’s a rare example of a boom-era deal successfully transferring risk from the public to the private sector.

Macquarie wrong turns put toll road in bankruptcy

23 Sep 2014

The U.S. route backed in part by the Australian bank went bust because of scant traffic, its operator says. In reality, the buyers created insurmountable potholes by overpaying, loading on debt and losing derivative bets. They need only look in the vanity mirror for blame.

Midwestern utility keeps cool in hot M&A summer

23 Jun 2014

Wisconsin Energy’s $5.7 bln takeover of overlapping Integrys will justify the 17 pct premium with cost cuts of only around 6 pct. More should easily be doable. The market-wide surge in mergers may have encouraged the deal, but no one in the Badger State is losing their head.

U.S. carbon emissions crackdown is well timed

2 Jun 2014

Obama’s proposed steep cuts in power plant pollution are bad news for the coal industry. But unlike Germany’s expensive retreat from nuclear power, the U.S. has cheap gas to fall back on. America’s shale dividend will offset any costs of going greener – at least at home.

Exelon is overpaying, even with the sandbagging

30 Apr 2014

Relative to similar deals, the U.S. utility is low-balling the projected savings from its $6.8 bln Pepco purchase. Modesty won’t fool regulators. They’ll demand a cut through lower electric bills. Even assuming more realistic synergies won’t justify a $1.1 bln premium.

BG’s CEO exit highlights bid vulnerability

28 Apr 2014

Chris Finlayson is leaving the UK gas group abruptly after another profit warning. BG says it is a question of leadership, not strategy. Chairman Andrew Gould looks like a safe caretaker. But until a new CEO is in place, BG’s takeover defences are weak.

Carlyle descends into a public-private inferno

3 Apr 2014

The mayor of a U.S. city once called Hellgate is using eminent domain to try and seize the local water utility the buyout firm acquired in 2011, a deal he backed. The clash shows why joint efforts between governments and investors to improve infrastructure don’t proliferate.

UK energy watchdog supercharges breakup option

27 Mar 2014

The possibility of a radical restructuring of energy companies based in Britain just became a probability. A wide-ranging competition inquiry may eventually lead to splitting generation from supply, in line with the original privatisation plan. Centrica is in the crosshairs.

Lego clan beats Goldman in $1.5 bln ISS float

14 Mar 2014

An investment by the toymaker’s founding family helped cleaning giant ISS cut debt in 2012. At IPO this brought a 41 pct annual return. That beats the result for EQT and Goldman Sachs. They can just be glad to be out after over eight years of ownership and several failed exits.

Debt is E.ON’s biggest headache

12 Mar 2014

Germany’s largest utility cut net debt by 11 pct in 2013, to 32 bln euros. But EBITDA is falling even faster. Despite a sharp dividend cut and scaled-down capital expenditure, E.ON’s medium-term leverage targets are becoming harder to achieve. 

TXU’s carcass scavenged for tax meat

27 Feb 2014

The Texas utility renamed Energy Future is nearly bust six-plus years after the $45 bln takeover led by KKR and TPG. A flock of buyout firms and hedge funds, including Apollo and Avenue, are clawing at each other for the scraps. This odd beast has juicy bits buried in its books.

Political assault on Centrica is more than hot air

10 Feb 2014

UK Energy Secretary Ed Davey has waded into a regulatory inquiry, noting high margins in gas supply and mooting potential breakups. Investors in Britain’s top gas supplier are aghast. But Davey is onto something. Margins do indeed look rich, and competition could be stoked up.

BG makes a habit of disappointing investors

27 Jan 2014

The UK gas company’s shares fell 15 pct after it predicted lower production this year and the next due to problems in Egypt and America. BG has traditionally enjoyed a premium valuation for its growth. But it clearly faces the same output and cost pressures as its peers.

E.ON investors underrate green energy risks

13 Nov 2013

Germany’s largest utility has pruned profit guidance again. The dash for renewable energy in Europe’s powerhouse economy endangers E.ON’s business model. Yet a share-price rebound, kicked off in September, goes on. Overly optimistic investors should brace for a rude awakening.

Li Ka-shing’s Hong Kong spinoff fails to energise

30 Sep 2013

The tepid reaction to the tycoon’s plan to list his local power utility suggests there’s little hidden value. The mature unit’s stable cash flows will look less attractive as interest rates rise. It’s hard not to share Li’s conclusion that cash can be put to better use elsewhere.

RWE’s dividend cut vital, but poorly communicated

20 Sep 2013

Germany’s second-largest utility has bowed to the inevitable and slashed its dividend. Deep structural changes of the country’s energy market are mauling RWE’s medium-term profit prospects. While necessary, RWE’s painful actions could have been better stage-managed.

Battered E.ON and RWE still far from bottom

14 Aug 2013

The inexorable rise of renewable energy is fundamentally challenging German utilities’ business model, devaluing past investment and cutting back future profit. E.ON and RWE are just starting a long downsizing. The adjustment will be painful for already suffering investors.

Defence fees at Severn Trent are hard to defend

17 Jul 2013

The British water utility paid its advisers 19 mln pounds for help thwarting a takeover. Severn’s board got what it wanted. But the payout looks generous. How much work does a four-week tussle in a regulated sector, with no formal bid, really require?

Centrica’s UK shale punt is suitably restrained

13 Jun 2013

Britain’s biggest energy supplier will pay up to 160 mln pounds for a quarter of a big shale prospect. The price looks fair. Shale could help the UK offset declining North Sea output, but the opportunity is unproven and barriers to industrial-scale production are formidable.

Bidders’ drip-drip approach sunk Severn Trent deal

12 Jun 2013

The 5.3 bln pound purchase of the British water company is dead. The bidders, LongRiver, say Severn was too cold about a takeover. But they were too rigid on price. The board did the right thing. Starting serious talks without a strong offer is a poor defence strategy.