Two Huge Energy Acquisitions Highlight the Day on Wall Street

GE and Exelon are putting billions of dollars to work in an effort to grow their businesses.

Apr 30, 2014 at 3:30PM

On a day when Wall Street is less than ecstatic about slow GDP growth and the Federal Reserve's continued tapering of bond purchases, energy companies are buying each other in a continued consolidation of the industry.

On a broad level, economic news wasn't very good today with an initial reading of first-quarter GDP up only 0.1%, hurt by both bad weather and falling government spending. Slow growth isn't good for the economy or corporate earnings, but it was also expected, so the Dow Jones Industrial Average (DJINDICES:^DJI) took it in stride and climbed 0.3% in late trading.  

The bigger news came out of energy, where two buyouts were front and center.


GE wind turbines blow in the distance, one of the many electricity generation assets GE sells to utilities. 

Buying up energy companies
Alstom said today that it would endorse General Electric's (NYSE:GE) $17.1 cash bid for its energy assets. This would give GE an even larger presence in power plant turbines and other grid services, which it sees as a long-term growth engine.  

GE isn't getting a steal at an estimated 7.9 time pro forma EBITDA, but the company is also trying to swallow a competitor with the deal. That's why Siemens has also sought the Alstom energy unit.

The winner will have a great opportunity to build natural-gas plants around the world, which will be in high demand as environmental regulations reduce demand for coal and countries shy away from building new nuclear capacity.

Further down the energy food chain, Exelon (NYSE:EXC) today made a $6.8 billion offer to buy Pepco Holdings (NYSE:POM) in an effort to reduce reliance on the wholesale power market. Exelon would also become the largest power distributor in the country if the deal goes through.  

Utilities are facing challenges from falling electricity usage, renewable energy, and low-cost natural gas. Diversification is one way to keep any of those factors from affecting a business too harshly. Consolidation is common as industries reach a state of decline, and while utilities aren't going to go away anytime soon they aren't viewed as growth investments by any means.

GE and Exelon's acquisitions come for very different reasons but say a lot about the energy sector. GE is betting that natural-gas power plant demand will increase over the long term and is adding more grid services to repair an aging grid, while Exelon is trying to protect its profits by increasing exposure to regulated markets versus the wholesale power market. Both are probably wise moves, but it will take years to see major financial impacts for investors.

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Travis Hoium manages an account that owns shares of General Electric Company. The Motley Fool recommends Exelon. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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