There is no question that MIR and ILA are bargains, but I strongly doubt that any offers will appear until sometime in mid-2003.
1. the companies are priced for bankruptcy right now, so the managements will resist takeovers at these levels.
2. the companies have legal issues on which there needs to be some level of resolution before outsiders want to inherit them.
3. many potential acquirers, like Buffet, may think they can pick off assets at fire sale prices without inheriting the baggage that comes with the whole companies.
I think #3 is not valid. People are comparing IPPs to telecom, the other area of wild overinvestment, which has allowed these incredible bargains to develop in the IPP sector. But the comparison is flawed because:
1. unlike telecom, there is no technology that instantly boosts energy production from existing assets by orders of magnitude.
2. the Enron BK cut industry overexpansion well before it became a huge problem. Already planned 2003 capacity is being cancelled, even by companies with sterling credit ratings. For example, Duke cancelled 3 of 5 planned power plants for 2003. And of course, the other IPPs have cancelled most of their 2003 capacity, since they have been completely shut off from the credit markets. Mirant cancelled almost all of its capacity for 2003, and all of its capacity beyond 2003. In three years, unless the market comes to its senses, the California blackouts of 2001 will be fondly remembered as the good old days. Of course, forward power curves will start moving up considerably before then, and the market most probably will work its magic well before then.
3. IPP power plants are mostly new and much more efficient than many old plant run by regulated utilities. Low power prices will result in the retirement of these old plants, thus rationalizing power supply. This has already started happening. AES requested permission to mothball 4,000 MW of capacity in Texas a few days ago.
Kyros |
