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Tracking Stock for Utilities: Highway to Higher Valuations?

Byline: 
Ajay Gupta is an attorney and economist and currently a senior associate in the San Francisco office of Analysis Group/Economics, a consulting firm. Previously, he practiced corporate law in the London office of Gibson, Dunn & Crutcher LLP, where he specialized in securities offerings, energy, and petrochemical project finance transactions and cross-border mergers and acquisitions. He can be reached at agupta@ag-inc.com.
Fortnightly Magazine - April 1 2000
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Telecoms may offer IOUs a model for multiplying market caps by dividing their shareholdings.

April 1, 2000


On Feb. 1, CMS Energy Corp. announced plans for a $600 million initial public offering (IPO) of a "tracking stock" that will represent a 20 percent interest in its electric and natural gas utility subsidiary, Consumers Energy. News of CMS Energy's proposed offering comes at a critical time for the energy industry.

Utility stocks have fallen on hard times and the reason is not hard to uncover. The inexorable march of electric industry restructuring exposes large parts of an integrated utility's operations to the forces of competition. Even as it is being forced to abide by market rules in certain sectors, the utility remains weighed down by regulatory obligations in others. That leaves the utility shareholders confused and its management frustrated.

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