Pittsburgh-based DQE Inc. said Wednesday it might put itself up for sale and reported 2000 earnings would come in at the lower end of its 5-8% targeted growth rate.
SG Barr Devlin and the Northbridge Group have been retained to explore options that could "result in the divestiture of some or all of DQE's component businesses, including the sale of the entire company," David Marshall, chief executive, said during an investor briefing.
He said the assessment, including potential transactions, is expected to be complete during the second quarter of 2001.
DQE said even though its targeted growth rate of 5-8% poses a "challenge" given current market conditions, it expects to reach the lower end of the comprehensive earnings growth target. The company said it expects 2001 earnings of $2.96-$3.36/share, principally dependent on equity market conditions. Analysts' consensus forecast is $3.07, according to research firm First Call/Thomson Financial.
The stock was up 1 to 33 5/3 in mid-morning trading Wednesday on the New York Stock Exchange, but is down about 25% since the mid-September.
Marshall said continued earnings growth will be recognized through a combination of traditional earnings from its delivery businesses, cutting operating costs by $30 million in 2001, increased market valuations of its investments, and selective asset sales. DQE anticipates achieving a return on equity of 12-14% in 2001, with cash flow from operations in excess of $300 million.
The sale of DQE's generation plants and associated final regulatory approval anticipated by yearend mark the completion of the first phase of industry-wide restructuring related to electric utility deregulation in Pennsylvania, Marshall said.
As the company is transformed from a integrated utility to a multiutility company, Marshall said the key to growth in deliverability will be spreading "significant fixed costs" over a growing base of customers. He noted the company has added 500,000 customers to its delivery businesses this year.
Sixteen of 19 major electric companies that have completed generation divestiture already have merged or are in the process of merging with other related delivery businesses to achieve the necessary economies of scale, Marshall pointed out.
Strategic Investments
Going forward, DQE will concentrate its attention on its utility Duquesne Light, its water business AquaSource, and its business development unit, DQE Enterprises, Marshall said. In addition to implementing the appropriate cost structure, the company looks for growth opportunities both in the electric and water delivery businesses, and continued growth in the development of DQE Enterprises' businesses.
At Duquesne Light, the Pennsylvania Public Utility Commission's extension of "provider of last resort" service will result in a 21% decrease in residential customer rates beginning in February 2002, will freeze its transmission and distribution rates through 2003, and its generation rates through 2004, and will boost competition by increasing Duquesne's shopping credits for most residential customers to 5.5�/kw-hr, Marshall said.
Continued consolidation, cost reduction, asset management, and rate relief comprise AquaSource's key strategies, with a projected return on investment of 4% in 2001, executives said.
DQE Enterprises will continue developing businesses that allow utilities and their customers to capitalize on the opportunities emerging from deregulation of the industry, said Tom Hurkmans, DQE Enterprises president. He explained the unit will concentrate on finding technology and business practice solutions offered by businesses that will enhance the value of essential delivered commodities, such as electricity, gas, water, and communications.
Hurkmans said DQE Enterprises currently has investments in 25 businesses, owning on average about 35% of each, and expects to make several additional investments prior to yearend. Two of DQE Enterprises' investments, HPower and Beacon Power Corporation, completed initial public offerings during 2000.
Despite the sharp decline in the NASDAQ market, Hurkmans said all the companies in which it has invested that are publicly traded are trading above what DQE Enterprises invested in them. Next year DQE expects to announced a series of partnerships with utilities in the US, Asia, and Europe that will enhance the value of its holdings, Hurkmans said.