Wednesday, December 17, 2008

CEG - D Day

Interesting day. Trading halted, the company announced that it was terminating the MAE deal and doing the EDF deal. The stock responded by flirting with 30 and then falling to 23. It's obvious that anyone hanging around for an auction of the company needed to move on and the remaining arbs went home, leaving little liquidity for sellers. 

I don't think the negative market reaction tells us much more then people don't like uncertainty if it doesn't have a cap on the downside. This leaves us with the question, what is the company worth? I don't see the stock doing anything until people regain some confidence that the problems from September have been dealt with in a systematic way. CEG laid out a plan, but people want to see execution.

At the point where CEG can demonstrate some solidity, then it deserves a valuation that more closely reflects the value of its businesses.

I discussed CEG valuation in an earlier post. I even included a spreadsheet for your enjoyment. I had laid out EDF's proposal in another post.

The detailed EDF valuation would be my starting post to get a more in depth view of CEG's value.

Meanwhile, for those that are looking for value in fixed income, the preferred A shares are now yielding 12%, since the .08625 preferred is selling for $18/share ($25 par).

If the company can regain its footing with the $4.5 billion asset sale, today's preferred yield of 12% and the common yield of 7% are generous compared to peers. Personally I think buyers at these prices and better will do well, but it may take longer then anyone wants to wait.

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