M&A decisions cause to pause
- A.T. Kearney, Inc., Englewood, CO (United States)
It`s big news in the business world: Electric companies are on a merger/acquisition rampage unlike anything seen since the early part of this century, when fewer than 10 holding companies controlled most of the nation`s power supply. According to the New York Times (December 10, 1996), the year had already witnessed 52 mergers or acquisitions in the electric utility and natural gas industries. Now, as Congress considers legislation to deregulate the electric utility industry, most observes say, {open_quotes}You ain`t seen nothing yet.{close_quotes} Some prognosticators believe that within the next five to ten years we`ll once again see a massive consolidation in the generation sector, a dozen or fewer giant transmission entities, and comparable shrinkage in the distribution sector. But does merging for scale always make sense? Is gargantuan size the only survival guarantee? Unless the company`s strategy specifically requires scale, merging with another vertically integrated utility can be a poor investment and create chaos in the organization for years to come. Mergers in this industry are often a growth trap, where the pure desire to get bigger can have negative impact on the strategy. Before they jump onto the M&A bandwagon, utility executives should reevaluate the potential downsides to mergers and acquisitions, which range from uncertain public policy to enormous human resource challenges. The worth while mergers will be those that take place after utilities functionally unbundle and then selectively acquire businesses that improve their strategic position. The ultimate object, executives should remind themselves, is to increase shareholder value. And, despite the pressure to merge, there are other ways to cut costs and build revenues. No company, no matter how big or savvy, can afford to pursue them all. Options must be weighed against each other to see which create the most shareholder value.
- OSTI ID:
- 530554
- Journal Information:
- Electric Perspectives, Journal Name: Electric Perspectives Journal Issue: 2 Vol. 22; ISSN 0364-474X; ISSN ELPED9
- Country of Publication:
- United States
- Language:
- English
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