Some Sail, Some Fail: Utility M&A after PUHCA

It is apparent from analyses of utility merger activity in 2006 that, in spite of the repeal of the Public Utility Holding Company Act (PUHCA), the bar has been raised for successfully consummating a utility merger.

* "Laborious and lingering" is an apt description of what the new strategic environment can hold. The toughest fight remains at the state level, where state regulators and officials have generally reacted to PUHCA repeal with increased scrutiny, sometimes entrapping merging companies in a protracted and painful process seemingly without closure.
* State regulators are now generally focusing on six hurdles that they expect the merging parties to surmount. CERA research shows that the hurdles for management will be higher now in many cases than before PUHCA repeal.
* Mergers can still be the most effective way to realign the company's strategy and asset profile with the business landscape. But merger strategies will require a focus on the right partner that can help the merger clear the six hurdles required of merging utilities.

In this research we identify and examine the factors needed for a merger to have a better chance of closing successfully. Whether successful consummation leads to a "successful merger" in terms of shareholder value added remains to be seen.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.