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MidAmerican Buys NV Energy In Synergistic Deal

By Mani
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MidAmerican Energy Holdings Co’s agreement to purchase NV Energy, Inc. (NYSE:NVE) would be an attractive complement to the Berkshire Hathaway subsidiary’s existing business portfolio, according to Bank of America Merrill Lynch.


In its credit analysis research report, BofAML research team believes the Nevada-based power provider NV Energy’s desire to invest in renewable and related transmission assets in Nevada parallels MidAmerican’s significant investments in wind and solar generation.

NV Energy Good Cultural Fit With MidAmerican

Peter D.Quinn and team at BofAML feel NV Energy’s electric and gas distribution infrastructure in Nevada complements MidAmerican’s existing natural gas and pipeline assets in the Western U.S. and PacifiCorp (OTCMKTS:PPWRL) in the Northwestern U.S.

BofAML feels the transaction appears to be an endorsement of Nevada-based power provider’s successes over the past decade besides expectations of above-average quality growth going forward. The analysts also conclude that NV Energy appears to be a good cultural fit with MidAmerican Energy.

Although the infrastructures are synergistic, BofAML analysts do not anticipate any meaningful financial synergies emanating from the transaction.

MidAmerican’s Acquisition Of NV Energy

As announced earlier, MidAmerican will acquire the Nevada-based power provider NV Energy’s common stock for $23.75 a share in cash, representing a premium of about 23 percent over Wednesday’s closing price of $19.28.

BofAML team doesn’t anticipate any investor-owned utility making a cash offer to acquire the Nevada-based power company, as the analysts don’t foresee adequate financial synergies to support paying a premium above MidAmerican’s price besides break-up fees.

Peter D. Quinn and team at BofAML anticipate the lone outstanding NV Energy parent holding company bond (Baa3/BB+) to be the biggest beneficiary. This is primarily due to MidAmerican Energy Holdings Co’s credit quality (Baa1/BBB+), besides its substantial resources. The team expects slight credit quality improvement due to the additional diversification and size the merger brings.

Credit Suisse Group AG (NYSE:CS) in its related equity research report assigned ‘neutral’ rating to NV Energy, Inc. (NYSE:NVE) and raised the target price to the offer price level of $23.75.

Kevin Cole and team at Credit Suisse Group AG (NYSE:CS) feel the possible rationale for the deal could be a combination of a desire to own a risk-averse stream of cash flows, exposure to U.S. housing recovery, besides realization of cost savings across the greater MidAmerican’s utility portfolio.

Wunderlich Securities in its report assigned a ‘hold’ rating to NV Energy, Inc. (NYSE:NVE) and revised the target price to the offer price of $23.75, from its earlier price target of $21.00.

James L. Dobson at Wunderlich however feels NV Energy, Inc. (NYSE:NVE)’s EPS growth for 2013 and beyond would depend on cost control and sales growth.

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