SOURCE: The Bedford Report

The Bedford Report

January 11, 2011 08:46 ET

Electric Utilities Look to Mergers & Acquisitions to Keep Dividends Stable

The Bedford Report Provides Analyst Research on Duke Energy & Constellation Energy

NEW YORK, NY--(Marketwire - January 11, 2011) - To combat rising costs, companies in the Electric Utilities Sector have been looking to mergers and acquisitions to keep profits steady and maintain their healthy dividends. Stricter environmental regulations require that any new power plants built that are large enough to produce 75,000 tons of carbon dioxide a year must use the best available control technology, which is expected to add significantly to operational costs. Mergers and acquisitions help grow a company's size, allowing it to better afford these rising costs. The Bedford Report examines the outlook for companies in the Electric Utilities Industry and provides research reports on Duke Energy Corporation (NYSE: DUK) and Constellation Energy Group, Inc. (NYSE: CEG). Access to the full company reports can be found at:

Yesterday, Duke Energy announced that it has agreed to buy Progress Energy for $13.7 billion in stock. Pending approval from regulators in North and South Carolina, the deal will create the largest US power company. Analyst consensus is that the new company's larger size will be more able to afford replacing aging transmission infrastructure and old power plants. Duke Chairman Jim Rogers says that in the next 5 years the new company would see savings in the Carolinas between $600 million to $800 million due to the benefits of combining their fuel costs and delivery systems.

Perhaps standing out most for investors are remarks from Rogers that the deal would allow the company to increase its dividend. According to Rogers, "It really enhances our ability to grow the dividend going forward." Rogers says Duke would like to see its dividend grow at a slightly less rate than its earnings. 

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While analyst consensus is that the deal has a good chance of winning approval, be forewarned that state regulators have rejected proposed deals in recent years that would have created utility giants. In 2006, Constellation Energy and FPL Group abandoned merger plans while in the same year Exelon and PSEG also failed to complete a deal.

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