Mergers and Acquisitions as a Response to the Deregulation of the Electric Power Industry : Value Creation or Value Destruction?

As a response to the deregulation of the electric power industry, many electric utilities adopted a strategy of acquiring other electric or gas utilities. We examine whether these merger and acquisition strategies create value for the utility shareholders and whether the strategies result in superior post-merger operating and stock-price performance relative to utilities that did not grow through acquisitions. We find little evidence that the mergers and acquisitions created long-term value for a fully diversified investor. Furthermore, the stock price and operating performance of the acquirers under performed the stock price and operating performance of a control portfolio of utilities that did not engage in merger activity. This under performance was even worse for those utilities that diversified along product/power or geographic lines. We conclude that if efficiencies and synergies were created as a result of deregulation, utilities did not have to grow through merger to capture them. Our findings also suggest that utility regulation did not preclude economically efficient mergers that increased shareholder wealth from taking place prior to deregulation