Thursday, February 23, 2006

KeySpan on the block

Last week KeySpan (KSE), an electicity/gas utility serving customers in NYC, Long Island, Massachusetts, announced that it is putting itself up for sale. Reports just in indicate that National Grid, a UK utility, may win the bid with an all-cash offer of $7.3 billion, which translates to $42/share.

I expect more, higher competing bids from other US utilities. The utilities sector has essentially been in a freeze since the depression. Now that the Public Utility Holding Company Act (PUHCA) is finally history, we are set for a wave of mergers in this sector.

Unfortunately, utilities' stocks are not cheap. Investors fleeing from the crashing tech sector found a safe haven in dividend paying utilities along with a few other defensive sectors, resulting in them being fairly priced now or even overvalued in many cases.

Picking utilities right now is risky. I would like to see strong recent insider buying activity to buy any of them.

My average cost for KeySpan is around $35.5/share, including reinvested dividends. I will wait for a winning bid before I mark this as a hit.

I also own a few shares of NiSource (NI), AES Corp (AES) and Mirant (MIR), all attractive targets.

Two more utilities that I am looking at seriously now are CMS Energy (CMS), a Michigan utility and Teco Energy (TE).


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