With the closing so far off on the TGN acquisition, has anything been said about the ability of CNP to upstream any dividends from TGN between now and the closing. My perception is that there is a lot of cash at TGN and it building daily. In addition, TNG has significant borrowing ability so the ability to both upstream some cash and have money to buy in the minority shares is certainly present. It all depends on what the purchase agreement says and what restrictions were agreed to between now and the closing. Any thoughts?
Okay...you've worn me out.
I already posted the information that shows TGN's pps did not respond to the announcement of the AEP sale.
The information simply supports my point that the higher value (i.e. $46 & change) received by the NYC guys includes the value of the add'l nuke MWs. Further, my point is that the add'l nuke added $6 & change to the overall sale, not $10 or greater as you suggested previously.
Bottom line...there is no way anyone was putting any value into TGN's pps w/o knowing the price to be paid for the add'l MWs. If you believe that statement & you have also seen the data that shows no material upward movement in the TGN pps after the AEP announcement, then you can't believe that The Street had already factored in the add'l nuke MWs.
As to the other stuff mentioned in your post, it has nothing to do with the points about how TGN's value at $40 seems to match up with recent unrelated asset sales.
If anything, the PUC needs to go back to AEP and say the sold their share of STP at too low of a price. It's not TGN's problem. they don't even own it yet -- and it will be excluded from the banker's valuation of TGN for determining control purposes.
> That MV figure would have started firming
> up in early March....
OK, so that would have been *after* AEP announced the details of the sale option...so I believe The Street *did*, at that time, factor in the strong probability that TGN would get a piece of the STP nuke action. (Maybe I am overly optimistic but I was figuring on that back when I started buying CNP in December in the $9 range. LOL)
Having said that, I will repeat that legally, it does not matter. The $36.25 market valuation CNP used in their true-up application was determined in accordance with the 1999 deregulation law and there really isn't any legitimate objection anyone can raise to it (besides, as you say, the 10% control issue).
Of course, legal realities and agreements are themselves irrelevant in face of the purely political objection that $36.25 is less than the $45.25 that CNP actually received. It may not matter to a PUCT member that technically using $40 (including the 10%) is the right thing to do. Not, that is, if he or she calculates the political flak from raising Houstonites' utility bills while CNP is "making a killing" selling TGN at an "inflated price" will be too much to bear.
I remain confident that our valuation of CNP is spot on, that the company's true-up case is legally strong and will net them enough to satisfy the credit agencies, and that when the dust settles we will get our $14-15/share.
I am concerned with how long this will take if the PUCT does not do the legally mandated right thing next month. It may not be worth waiting around for the last couple of dollars if it is going to take another year or more to resolve in the courts.
Brad Hessel (long CNP & RRI)
<<I think CNP diffused that PR bomb pretty effectively and took away a lot of its oppositions thunder.>>
iman, i agree with your comments on cnp actions. you previously though cnp would obtain $2.9b in true-up. can u share your revised estimate(after tgn sale) for cnp/puct ultimate straned cost settlement? also, u think settlemnt ahead of fianl date (aug 26). i knid of expect a rather quick settlemnt now, but they may still wait until end of august to announce. tia.
That MV figure would have started firming up in early March.
CNP had provided updated guidance a couple of days prior to the final 30 trading days. The $36.26 was probably expected to be higher but the market price settled down fairly quickly. This is another example that CNP management provided info to the market (i.e. revised earnings) and the market proceeds the earnings & determined TGN was worth $36 and charge.
Without the revised earnings guidance, TGN would have priced out in the $33 range.
I think CNP diffused that PR bomb pretty effectively and took away a lot of its oppositions thunder.
> Finally, I think you missed my point of my
> last post. The PUC true-up value should
> exclude the value of the extra MWs from
> the ROFR. Based on all the pps numbers
> out there for asset & stock sales, my point
> is that TGN's price of $36.26 (& the
> possible addition of the 10% control
> premium) is comparable to other assets
> in Texas. Anything above that doesn't
LOL I well appreciate both that this is the crux of the matter and that as a CNP long, it is in my interest for you to be right here.
Do you know when the $36.26 market value figure first surfaced? Was it 31 March or earlier?
Brad Hessel (long CNP and RRI)
There is no way the NYC guys are going to let CNP upstream cash dividend other than what is currently allowed (i.e. $1/sh/yr.)
As for cash accumlating on the B/S, that will go to pay the $175MM+/- for their pro rata share of STP.
Looks like about $714MM to buyout the 19%. I'd look to the NYC guys (or their banks) for that money.
One final note about TGN and is true-up value. Investors need to remember that the final price for TGN includes the value of the add'l 330MWs of nuke from AEP. So it is not fair to compare the buyout price with the pps that the PUCT will be using for the true-up.
> ...Investors need to remember that the
> final price for TGN [[that CNP is getting;
> namely, $45.25]] includes the value of the
> add'l 330MWs of nuke from AEP. So it is
> not fair to compare the buyout price with
> the pps that the PUCT will be using for
> the true-up [[namely $36]].
Hmmm...when the $36 number was derived, we already knew that an STP purchase option was highly probable. In that light, I have trouble with asserting that we can attribute $9 in per share value to turing that high probability into virtual certainty. There's gotta be more to it than that!
Brad Hessel (long RRI and CNP)
Step one of the acquisition is for CNP to buy the 19% minority interest shares outstanding for, as they say, $47/sh. Any thoughts you have on the likelihood that a premium will be required to do this (corollary question, do the Minority shareholders have any options). With some 16 mm shares out, each $5/sh would cost $80 MM.
Would appreciate your thoughts on this.
I believe that the determined price for TGN would restrict any cash movement before the closing date.
The regulators will now have everything on the table for scrutiny before they determine the stranded cost true-up.
Debt service will be reduced by at least the debt paid off...so balance sheet is strengthend. Cash flow is impeded by loss of TGN.
While true-up will still determine more in late August, my early conlusion is that bonds should improve, but equity upside is limited.