Progress mentioned as possible Buffett takeover target

Published June 27, 2005

Investment guru Warren Buffett's recent interest in electric utility companies prompted TheStreet.com columnist James Cramer to speculate Tuesday about which utility might be the next takeover target for the Oracle of Omaha.

Cramer's best guess? Progress Energy Inc., the Raleigh, N.C., parent of Progress Energy Florida of St. Petersburg.

Buffett, whose Berkshire Hathaway Inc. agreed in May to acquire U.S. utility PacifiCorp. from Scottish Power PLC for $5.1-billion, was quoted Tuesday by the Wall Street Journal as saying he sees further attractive investment opportunities in utilities.

Citing Buffett's tendency to steer clear of hostile takeovers, Cramer reasoned that Buffett would be most interested in a utility headed by an older chief executive more likely to be willing to sell his company. That, Cramer said, would steer the focus toward three utilities with CEOs in their 60s: Edison International of Rosemead, Calif.; PPL Corp. of Allentown, Pa.; and Progress, headed by 62-year-old Bob McGehee.

"Bottom line: I'd be betting on Progress Energy, one of the Southeast's premier utilities, as the stock to buy if I were Warren Buffett," Kramer said.

But in a TheStreet.com column the next day, John P. Reese, chief executive of Internet investment research and stock analysis firm Validea.com, challenged Cramer's choice of Progress, arguing that the company's return on equity is too low and its debt too high to appeal to Buffett.

Progress "just doesn't meet my interpretation of Buffett's quantitative criteria, and I wouldn't buy the stock hoping that Buffett will express a real interest," Reese said.

Progress spokesman Keith Poston said that while it would be flattering for Buffett to express interest in the company, "we have not heard anything from Warren Buffett or any of his people." And Progress chief executive Bob McGehee told Wall Street analysts June 15 that merger and acquisition activity "is not something we're interested in jumping back into right now."