combine two vertically integrated utilities when the market may call for disaggregation?
All deregulating industries share the same lesson: profits eventually decline, leading to consolidation. Electric utilities are no different. But as the electric industry jockeys for competitive position, and as the merger din grows louder, will prior deals prove instructive? Will they epitomize the future market? Or will more innovative mergers overtake the utility industry?
Prior to the 1990s, utility combinations often stemmed from the target company's weak management or financial condition. Others were fueled by the perceived value of transmission interconnections or the utility's desire to protect itself from an unwanted suitor. On the other hand, the mergers of today and tomorrow will more likely focus on versatility and value.
Earnings growth and market share are the elusive quarry of utility executives who seek to dominate tomorrow's competitive landscape. Utilities will seek to gain market share through customer ownership and skill extension, and to emphasize growth through product and service leverage and earnings and cash flow diversity. While the debate continues on "owning the access" versus "owning the meter," a merger may provide the best means to defend and grow the business.
Mergers and acquisitions (M&A), though not without drawbacks, can accomplish multiple objectives: improve competitive cost position, create earnings, increase market share, and provide a strategic growth platform. However, financial success and