You've heard talk lately about the convergence of electricity and natural gas. That idea has grown as commodity markets have matured for gas and emerged for bulk power.
Electric utilities that may not appear attractive on a "standalone basis" could become attractive takeover targets because of their location, according to PaineWebber's Electric Utility Monthly Industry Update.
The company pointed to the recent failed attempt by CalEnergy to acquire New York State Electric and Gas. PaineWebber noted that, at the time of the attempted takeover, NYSEG was not a favored stock. In fact, NYSEG was not on PaineWebber's list of possible takeover targets.
PaineWebber said the strategic location of NYSEG appeared to be the key factor in the attempt. PaineWebber believes that CalEnergy wanted to acquire an electric utility in the Northeast because that region is moving fastest toward retail electric competition. That purchase would have allowed CalEnergy to become an aggressive early participant in a competitive market.
PaineWebber said the acquisition by Enron of Portland General Corp. because of its strategic location in the northwest is another example of location being a major factor.
In mid-August, CalEnergy had announced abandonment of its hostile takeover of NYSEG (see "Headlines," Sept. 15, p. 17).
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