TXU Competitor Line-Up: Before & After

Stock Tickers: TXU, DUK, FPL, ETR, FE, AEP, EIX, AES, PPL, CEG, PGN, XEL, DTE, NRG.

On the Friday of February 23 that CNBC’s David Faber broke the TXU (TXU-NYSE) merger in the largest private equity to date, we simultaneously gave a big list of competitors with high market caps in the power generation business.  We did not really differentiate between coal-fired power plants and nuclear-powered plants because of the fact that TXU has both.  Those may be split up and the KKR-Texas Pacific deal was going to alter the future of coal powered plants and encourage more investing in renewables, so really the potential buyout spectrum could be among any of these.  What is most interesting is that besides TXU, the sector is doing much better than the market during the time the drop came in the came in the overall markets.  So investors are either being defensive OR they are still thinking more deals are coming. Cramer noted more deals were likely at the time.

Besides the Blackstone, Texas Pacific, Carlyle, KKR, and others, Warren Buffett and Berkshire Hathaway are still deemed as potential bidders among many other firms for other power generation assets.  The KKR-Texas Pacific deal valued the shares at $69.25, but the close Friday was $62.75; shares sit today before the close up 2.8% at $64.56.  Shares closed on Friday, FEB 23 at $59.63 (adjusted for dividend); so shares are up over 7% since then (the S&P is actually Down 3.5% in the same timeframe).  If the KKR & Texas Pacific Capital were bounced out of the deal, it is feasible they would look elsewhere.  Warren Buffett may still be thinking about where he can invest into the sector too.  This number is lower now because of corporate spin-off activities and the like, but we already gave a $29.00 perceived break-up value on Duke back on February 9, 2007.  We gave the following 13 comparables back then, and here is how the list compared:

Stock (Close on FEB 23); Price Now (adjusted for dividends)

Duke Energy (DUK) $19.91; $19.69 (-$0.22).
FPL Group (FPL) $59.23; $59.80 (+$0.57).
Entergy (ETR) $100.95; $100.65 (-$0.30).
Firstenergy (FE) $63.51; $63.53 (+$0.02).
American Electric Power (AEP) $45.75; $46.40 (+$0.65).
Edison Int’l (EIX) $46.97; $48.97 (+$2.00).
AES Corp (AES) $22.28; $21.01 (-$1.27).
PPL Corp. (PPL) $37.26; $38.55 (+1.29).
Constellation (CEG) $75.66; $83.75 (+$8.09).
Progress Energy (PGN) $50.09; $49.90 (-$0.19).
Xcel Energy (XEL) $24.18; $23.69 (-$0.49).
DTE Energy (DTE) $47.20; $46.82 (-$0.38).
NRG Energy (NRG) $63.52; $70.67 (+$7.15).

So as you can tell many of these are up and the ones that are down are not trading down anywhere close to the 3.5% drop in the S&P (except AES).  A merger speculator would say the sector is still in play here because of the price action compared to the markets.

Jon C. Ogg
March 19, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.