Energy Biz - July/August 2008 - (Page 18) » FinAnciAl Front are more concerned with getting quick returns. Among the most common complaints with private owners is that workers get fired to help pay for the purchases while assets are flipped before promises are fulfilled. FinAnciAl climAte The financial climate has evolved since the economic growth spurt of the late-1990s that led to a rash of full-scale mergers. The slowdown in the early part of the decade caused a retrenchment whereby Advocates say that sovereign wealth funds are a function of free commerce, facilitating the flow of capital across national boundaries as well as the technical know-how needed in many burgeoning industries. Skeptics, however, take a more sobering view, noting that such funds originated in the Middle East and are now prominent in China and Russia. Critical questions, such as whether key American businesses want to become obligated to foreign nationals that can’t be properly monitored, keep coming up. Foreign enterprises, meantime, are expected to con- a Decade Of Deals AnnounceD electric AnD gAs utilitY m&A Announcement DAte rAnking vAlue inc. net Debt oF tArget ($ mil) number oF DeAls Foreign Acquisitions in us poWer AnD gAs rAnking vAlue inc. net Debt oF tArget ($ mil) number oF DeAls % oF Foreign buYing in us poWer m&A $$ 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008* *ThrOugh 5/31 sOurcE: ThOMsOn rEuTErs 82,734.7 76,810.2 34,957.6 14,652.1 21,944.1 22,830.7 56,813.7 94,244.7 102,155.0 30,118.8 163 170 109 98 168 147 144 189 178 54 378.7 16,564.3 978.7 1,598.3 1,266.9 6,175.1 10,432.6 24,960.4 30,494.3 5,538.3 14 31 20 17 30 36 28 53 46 16 0.5 21.6 2.8 10.9 5.8 27.1 18.4 26.5 29.9 18.4 utilities in this country focused on bread-and-butter issues. By 2005, they had trimmed their debt and were in tip-top shape. Money had been cheap and accessible, all of which spurred a number of talks. Now, however, capital is much tougher to come by. Integrated utilities are still looking to expand. But they are taking a more calculated approach. To ensure shareholder value, future transactions will likely be more complementary and better executed. And they will assuredly involve nontraditional entities that include not just domestic private equity investors but also infrastructure funds such as Australia-based Macquarie and sovereign wealth funds that have already pumped billions into ailing U.S. investment banks. Sovereign wealth funds, which are set up by national governments, are estimated to hold $2.9 trillion in assets. Analysts are predicting that this amount could rise to $12 trillion by 2015, which is still a small percentage of globally traded securities. That compares to institutional investors that hold $14 trillion in assets and U.S. mutual funds that control $10 trillion. Hedge funds hold $2 trillion. July/August 2008 tinue to pursue U.S. power and gas assets even though state review of those types of deals has become more vigorous. Last year, Spain’s Iberdrola bid $7.8 billion for Energy East — a deal that must still receive approval from New York state regulators. European companies also sought U.S. renewable assets, including Energias de Portugal’s $2.3 billion buyout of Horizon Wind Energy and E.On’s $1.4 billion purchase of the North American operations of Airtricity. “The bottom line is that companies need to invest in infrastructure and to diversify their assets to get away from their reliance on fossil fuels,” says Skadden’s Rogan. “Their goal is to increase earnings growth. Until the credit crunch eases, the volume of mergers and acquisitions is expected to be down. But in the meantime there will still be transactions.” No doubt, deals will continue to get done. But the scope of buyouts and asset sales has expanded. They don’t just involve traditional enterprises vying for greater market share. They also include a growing cast of new players such as private equity and foreign interests that are pursuing an opportunity. 18 E n E rgyB i z
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