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Executive Summary

Top Companies Still the Best Takeover Bets

By Roger S. Conrad on May. 2, 2014

This year is shaping up as a big one for utility mergers. The market value of companies in our Utility Report Card that have announced deals has already reached $237 billion. And Berkshire Hathaway (NYSE: BRK.A, BRK.B) has yet to pull the trigger. (See Buffett Still Eyeing Utilities.)

Thus far, a handful of giants account for virtually all the volume. That includes Aggressive Income Portfolio holding Exelon Corp’s (NYSE: EXC) all-cash bid for Pepco Holdings (NYSE: POM).

The new company immediately gains major synergies in the Mid-Atlantic region, providing financial support for its nuclear power plants in wholesale markets.

I never speculate on takeover stocks that can’t make it on their own–a bias that held me out of Pepco this year. But in the long run, Exelon shareholders will benefit the most from this deal, thanks to a low purchase price and numerous opportunities to upgrade underperforming regulated assets.

As for finding strong companies with takeover appeal, the key is business performance. 

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