Abstract
In this paper, we evaluate selected multi-business utilities in the European energy market with regard to synergy potentials. To this end, we survey the development of the energy market in Europe and the performance of integrated versus focused utilities regarding their capital market performance measured by their corporate surplus (or deficit). The analysis is restricted to true business integration, in contrast to horizontal or vertical cooperation among separate firms. The German utility company RWE is analyzed in more detail. We find that, over the last 10–15 years, most of the multi-business utilities investigated underperformed compared to more focused utilities, and that they were even below the STOXX Europe 600 utilities index. Furthermore, synergy potentials need to be evaluated continuously, especially when influencing factors, with the potential to act as “game changers”, are either emerging on the horizon or are already present. We conclude that operating an integrated business model is not necessarily outdated in today’s energy markets, and offers a number of advantages.
Highlights
The goal of a multi-business firm is to create more value than what stand-alone businesses would do
In this paper, we evaluate selected multi-business utilities in the European energy market with regard to synergy potentials
Over the last 10–15 years, most of the multi-business utilities investigated underperformed compared to more focused utilities, and that they were even below the STOXX Europe 600 utilities index
Summary
The goal of a multi-business firm is to create more value than what stand-alone businesses would do. This value added is commonly referred to as “corporate surplus”. In recent years, a growing number of multi-business firms has been valued with a corporate discount rather than a corporate surplus. This general trend can be seen in the energy market. Over the last 10–15 years, fully integrated utilities, such as RWE or E.ON, have significantly lost market capitalization. More focused companies in the energy sector, such as National Grid or Centrica, have gained value
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