My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

What to do when a high dividend stock attempts a significant acquistion of another company.

Keep away from high dividend stocks that you don't understand.  I started analysis on Exelon (EXC) before several merger and acquistion proposals were reported in the financial press.  Now I know that I'm not going to be able to understand the dividend record, earning power, or strength of balance sheet of the combined companies.
 
I thought that Exelon Corp was shaping up to be an excellent high dividend stock when I discovered it a few weeks ago, but then they decided to buy Constellation Energy Group (CEG).  I know little to nothing about CEG, so now I'm a bit hesitant to spend much time analyzing Exelon.  This is unfortunate because I wanted to analyze Exelon so my readers would have some good analysis of a high dividend utility stock.
 
What really irks me is that they need the permission of third-party bureaucrats to acquire another company.  If the CEG merger wasn't enough - now they are attempting another acquisition only this time much smaller.  Again, they need bureaucratic permission.    EXC doesn't expect to be granted approval until the third quarter of 2011.  This is more proof that I don't live in a free, capitalist country.
 
The company that Exelon seeks to merge with is doing its own acquisitions.  All of this makes analysis of Exelon not worth the effort.
 
I'm taking Exelon off my watch list until all this merger and acquisition occurs.  I will reevaluate the new company once they start paying dividends.  Stay away from high dividend stocks that are attempting to acquire one or more companies if you don't clearly understand how the new company will make profits and their capitalization structure.  You might have to sell one of your high dividend stock favorites when they decide to propose an acquistion.  There have been many colossal acquisition blunders (e.g. Time Warner buying AOL).  Don't let a high dividend blind you to a horrible acquistion that will lose the company money.
 
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By Tess Stynes and Naureen S. Malik
   Of DOW JONES NEWSWIRES

Exelon Corp. (EXC) said Thursday it has agreed to purchase a north Texas natural-gas fired plant from Sequent Wolf Hollow LLC in a $305 million deal.

The move follows Exelon's planned $7.8 billion acquisition of Constellation Energy Group Inc. (CEG) that was unveiled last month. That deal puts Exelon--the largest operator of nuclear plants in the U.S.--in position to resuscitate some nuclear developments abandoned by Constellation because they were too costly.

When the deal between the two power companies was announced, executives said that matching Exelon's large merchant business, which sells electricity on the wholesale market, with Constellation's retail business, which markets directly to consumers, was a key driver for the deal.

Separately, Constellation on Thursday agreed to acquire MXenergy, a Connecticut supplier of natural gas and electricity, for $175 million. MXenergy has more than a half million customers in 15 states and two Canadian provinces. Constellation expects the move to supplement its growing retail business, especially in the residential market. MXenergy shareholders Denham Capital Management, Charterhouse Group LLC and Sempra Energy Trading LLC support the deal.

Exelon said the acquisition of the Texas plant will expand its clean-energy portfolio in anticipation of coming clean-air regulations. "This is not a needle mover," William Von Hoene, executive vice president of finance and legal at Exelon, said during the Deutsche Bank Securities alternative energy, utilities and power conference Thursday afternoon.

The Wolf Hollow acquisition is expected to close in the third quarter upon regulatory approval.

It also expands the company's presence in Texas, where Exelon already owns and operates three gas-fired plants and where Constellation also has generation assets. Hoene said Wolf Hollow "will be modestly accretive to cash flows in 2012 and neutral to earnings near-term."

Exelon last month reported first-quarter earnings fell 11% amid hedging losses and other charges, though revenue was up due to higher prices and unusually cold weather in Texas.

Shares of Exelon closed 1.1% higher at $42, while Constellation also advanced 1.1% to $37.07.

-By Naureen S. Malik and Tess Stynes, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com

 

Exelon (EXC) analysis delayed due to possible merger with Constellation Energy Group (CEG).

I was going to start analyzing Exelon (EXC) because it pasted my mechanical tests, but today’s news of its possible acquisition of rival Constellation Energy (CEG) has scared me off until later.  All three major areas of analysis will change: dividend record, earning power, and strength of balance sheet.

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(Reuters) - Power company Exelon Corp (EXC.N) struck a deal to buy rival Constellation Energy Group (CEG.N) for $7.9 billion in a bid to become the largest generator of competitively priced electricity in the United States.

It would be the latest in a string of deals in the fragmented U.S. utility industry, which faces new costs to upgrade power grids and meet environmental controls.

It is Exelon Chief Executive John Rowe's latest -- and likely last -- attempt to transform his company through acquisitions. Exelon was thwarted in efforts to buy independent power producer NRG Energy Inc (NRG.N) in 2009, Public Service Enterprise Group (PEG.N) in 2006, and Illinois Power in 2003.

The combined company will keep the Exelon name and its headquarters in Chicago. Rowe plans to retire after the deal closes, and Exelon Chief Operating Officer Christopher Crane will become the new company's CEO. Constellation CEO Mayo Shattuck will become executive chairman.

"This enterprise will have the scale and financial strength to drive expansion in competitive energy markets, as well as new investment in the next wave of clean generation and sustainable products and services," Shattuck said.

Constellation shareholders will receive 0.93 Exelon share for each Constellation share, the companies said in a statement.

The offer values Constellation at $38.59 a share -- 12.5 percent above its Wednesday closing price of $34.30.

Exelon said the deal is expected to increase its 2013 earnings by more than 5 percent.

Exelon, among the leading U.S. utilities and the nation's top nuclear power company, will add 1.2 million customers to its existing 5.4 million. The combined company will serve Maryland, Illinois and Pennsylvania.

About 55 percent of the new entity's power generation fleets will be nuclear, 24 percent natural gas, 8 percent renewable and hydro, 7 percent oil and 6 percent coal.

Exelon shares were off 35 cents ay $41.14 in morning trade, while Constellation was up 3.5 percent to $35.49.

REGULATORY HURDLES

The companies expect the deal to close early in 2012. But utility deals in the United States are usually drawn-out procedures that face tough scrutiny from states and regulators.

Constellation has faced challenges in closing its own deals in the past. Florida power company FPL Group Inc scrapped a $12.5 billion takeover of Constellation in 2006 after the merger became embroiled in Maryland state politics.

Recent deals in the industry indicate utilities believe regulators are becoming more receptive to consolidation. Duke Energy (DUK.N) has offered $13.7 billion for Progress Energy (PGN.N), Northeast Utilities (NU.N) is buying NSTAR (NST.N) for $4.2 billion, and AES Corp (AES.N) has bid $3.5 billion for DPL Inc (DPL.N).

The Exelon-Constellation deal must be approved by shareholders of both companies, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, state regulators in Maryland, New York and Texas, and other regulatory bodies.

Following completion of the deal, Exelon shareholders will own about 78 percent of the combined company.

Barclays Capital, J.P. Morgan Securities, Evercore Partners and Loop Capital Markets were financial advisers to Exelon.

Morgan Stanley, Goldman Sachs and Credit Suisse advised Constellation.

(Reporting by Michael Erman in New York and Krishna N Das in Bangalore; Editing by Saumyadeb Chakrabarty, Ian Geoghegan and John Wallace)

Link to original article: http://www.reuters.com/article/2011/04/28/us-constellation-exelon-idUSTRE73Q8BS20110428

April 28, 2011 09:49 AM Eastern Daylight Time 

Kendall Law Group Investigates Constellation Energy Group, Inc. Merger for Shareholders

DALLAS--(BUSINESS WIRE)--Kendall Law Group, led by former federal judge Joe Kendall, is investigating Constellation Energy Group, Inc. (NYSE: CEG) for shareholders in connection with the proposed acquisition by Exelon Corporation. The national securities firm’s investigation seeks to determine whether Constellation Energy and its Board breached their fiduciary duties by entering into the agreement without properly shopping for a deal that would provide better value for shareholders. If you are a Constellation Energy shareholder and would like additional information about your rights, contact the Kendall Law Group at 877-744-3728 or by email at skendall@kendalllawgroup.com.

On April 28, 2011, the companies announced the definitive merger agreement under which Constellation Energy would be acquired by Exelon, in a transaction valued at approximately $7.9 billion. Under the terms of the agreement, Constellation Energy stockholders will receive 0.93 Exelon shares (NYSE: EXC) for each share of Constellation Energy/CEG common stock held. The value of consideration being offered is worth approximately $38.59 a share, which represents a 12.5 percent premium over Constellation Energy stock's Wednesday closing price of $34.30. The firm’s investigation seeks to determine whether Constellation Energy and its Board undertook a fair process in negotiating the deal.

Kendall Law Group was founded by a former federal judge, includes a former United States Attorney, prosecutors and securities lawyers who are experienced in complex securities litigation. The firm has been counsel in numerous merger and acquisition cases nationwide, including some of the largest transactions in the United States.

Contacts

Kendall Law Group LLP
Scott Kendall, 214-744-3000
877-744-3728 Toll Free
214-744-3015 Facsimile
skendall@kendalllawgroup.com
www.kendalllawgroup.com

Link to original article: http://www.businesswire.com/news/home/20110428006191/en/Kendall-Law-Group-Investigates-Constellation-Energy-Group

The practical significance of book value. Plus 15 book values of stocks mention on this blog.

There is no hard fast rule for price to book value ratios, but lower is definitely better.  I like the ratio too be less than 2.0.  Here is a list of many of the high dividend stocks mentioned on this blog with their most recent price, book value (BV)/share, Price/BV ratio, and dividend yield.  The results might surprise you.  Most of the book values per share are as of December 21st, 2010 unless otherwise noted.

Ticker              Price                BV/share         P/BV   Div. yield

=================================================

AGNC            $28.58             $24.24             1.18     19.51%

SB                   $8.26               $3.86               2.14     6.79%

SDRL              $34.42             $9.78               3.52     5.6%

TNH                $108.96           $11.35             9.6       4.94%

EXC                $39.97             $20.45             1.95     5.13%

FE                   $37.90             $28.02             1.35     5.99%

FRO                $22.59             $9.57               2.36     1.62%

MCD               $76.66             $13.55             5.66     3.27%

NGG               $48.80             $12.87 (ttm)    3.79     4.28%

PM                  $65.90             $1.90               34.68   4.01%

PCL                 $42.13             $8.47               4.97     3.96%

TNK                $10.15             $10.46             0.97     9.02%

VOD               $28.85             $17.06 (ttm)    1.69     3.18%

WIN                $12.41             $1.77               7.01     7.73%

T                      $30.27             $18.80             1.61     6.11%

Excelon (EXC), First Energy (FE), Teekay Tankers (TNK), and AT&T (T) warrant further examination for their high dividend yields and low price/book value ratios.

Philip Morris (PM) has an extremely high price/book value ratio which needs to be examined to make sure it’s not some weird artifact of how Google Finance and Morningstar display financial information.

Here is quick excerpt for Chapter 42 of Security Analysis 2nd edition on the practical significance of book value.

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Practical Significance of Book Value. The book value of a common stock was originally the most important element in its financial exhibit. It was supposed to show “the value” of the shares in the same way as a merchant’s balance sheet shows him the value of his business. This idea has almost completely disappeared from the financial horizon. The value of a company’s assets as carried in its balance sheet has lost practically all its significance. This change arose from the fact, first, that the value of the fixed assets, as stated, frequently bore no relationship to the actual cost and, secondly, that in an even larger proportion of cases these values bore no relationship to the figure at which they would be sold or the figure which would be justified by the earnings. The practice of inflating the book value of the fixed property is giving way to the opposite artifice of cutting it down to nothing in order to avoid depreciation charges, but both have the same consequence of depriving the book-value figures of any real significance. It is a bit strange, like a quaint survival from the past, that the leading statistical services still maintain the old procedure of calculating the book value per share of common stock from many, perhaps most, balance sheets that they publish.

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