Sunday 30 September 2012

GE Capital to acquire National Grid for £9+ share!

National Grid @ 683p, -10p (-1.44%).

Rumour mill, grind, grind, grind......

No sooner has GE Capital (GE's Financial Arm), returned to some kind of health and been given the green light to resume dividends to its parent (again some kind of sign that capital liquidity levels are better balanced with liabilities), than rumours are now circulating that GE Capital could be a buyer (then a seller), of National Grid in order to acquire the US based operations of the UK utility.

The following report from www.thisismoney.co.uk: MARKET REPORT: Sparks fly again on National Grid amid takeover rumours suggests that a bid "well North" of £9 per share is being mulled over which was enough to drive the shares up to a peak in the last week of £6.93.

The seller bit extends to a sale of the UK operations, possibly to Hong Kong billionaire Li Ka Shing who has previously acquired Northumbrian Water, and Wales and West Utilities.

Quite rightly US media (investing.businessweek.com: BRIEF: GE Capital touted in National Grid buyout [Times Union, Albany, N.Y.]) are questioning why GE Capital might want to purchase utility assets despite GE being invested in what it calls "smart grid" technologies that might enhance electric grids.

And whilst I think it a little far fetched (more likely to just buy the US operations from NG), it would be an interesting conclusion to my ownership of National Grid, particularly if the bid were to be "well North" of £9 per share. 
£9 itself represents a 31% premium to Friday's closing price which would go some way to compensating my portfolio for the significant loss of the dividend that NG currently delivers.

Interesting that my portfolio also holds GE although with a weighting of 2.44% and yielding 2.7% it does not have anything close to the influence that National Grid currently has as my second largest holding, representing 17.29%, and yielding 5.98%.

Still only vague rumours though (but very specifically naming GE Capital), and from just one source at this stage, which might be more to do with a change in the market winds, but it would have an impact on my current portfolio strategy. 
At £9 (or more), it could be a strategy altering jar of jam today, in exchange for the current thick layer of jam my portfolio receives on an annual basis.
And whilst a jar of jam today might initially seem to be a handsome reward, you also have to look at such as Li Ka Shing and ask why he is a billionaire and why he might be willing to exchange a financial premium to invest in utilities (he isn't the only one), for an consistent ongoing revenue stream.

If you also look around and see how many individually quoted utilities are left on the FTSE it really puts a question mark over the succession of UK Governments that have allowed prized assets to fall into foreign ownership and exposed our national energy security. 
It doesn't give a regulator too much to play with either.
And how many consumers, unhappy with rising energy costs, initially held shares in their regional utilities but were happy (at the time), to have made a profit when the companies were taken over. 
They have probably paid that small profit back many times over, and year on year, in rising tariffs .

So the biggest loss might just be my current strategy as I couldn't easily replace NG's strengths and qualities particularly on the pre and post rights issue terms that I acquired them at and their weighting in my portfolio.

Not a problem for today but still food for thought.

Related article links:
www.thisismoney.co.uk: MARKET REPORT: Sparks fly again on National Grid amid takeover rumours
investing.businessweek.com: BRIEF: GE Capital touted in National Grid buyout [Times Union, Albany, N.Y.]

Related posts:
August 2012: Portfolio update.

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