André Jurres

Today a new record was announced, the takeover of TXU by two large investment companies for an amount of 44 billion dollar.  The maximum value of TXU is estimated at 39 billion dollar.  A premium of 5 billion dollar can be acceptable if the buying party is adding value or has a unique strategy to increase the value of the company that will be taken over.  The buying parties have promised to kill planned investments in new coal plants as they do not fit the new interest in reducing the carbon output of power plants.  This by the way good decision is regrettably not backed by another announced strategy to invest in other profitable power production.  Looking at a sector like telecom, were enormous goodwill was paid for possible future growth in new services which resulted in the bankruptcy of an entire sector.  Although this happened almost seven years ago with the burst of the Internet bubble as final anti-climax this industry is struggling until today with confidence in its own future.  Only last week Lucent/Alcatel announced another restructuring cutting staff, instead of building the future a lot of negative energy is wasted.
As the invested amounts need to be earned back, the new shareholders will have a heavy task in controlling the return of the company while running its operation with the handicap of not having insight knowledge.
Personally I believe that investment companies can buy participations into these types of businesses but that buying entire companies without operational added value is very dangerous.  For one because it is not their core business, their core business is managing money, and secondly because the energy market is facing big challenges like for example new cleaner technologies, higher demand versus lower fossil fuel availability and as such return on investment will/can come under pressure.