By Maxine Shapiro, KERA 90.1 business commentator
Dallas, TX – TXU is taking some drastic action to alleviate its current conditions in the market. Will it help? I'm Maxine Shapiro with KERA Marketplace Middays.
Dallas-based TXU Corporation's stock took another nosedive today, as it announced that it will be reducing their third-quarter dividends by 80%. As announced via an early morning press release, investors who enjoyed sixty cents per share of common stock last quarter will only be receiving twelve-and-a-half cents per share this quarter. Looking for any way to recoup their credit-rating standing, TXU will also be selling their European businesses. You might remember last week, its stock had already plummeted on the news credit-rating agencies in Great Britain had reduced the company to junk bond status.
The Wall Street Journal gives a brief history of what went wrong in Europe for the company. TXU entered into the British market in 1998. Its over-$7 billion acquisition of Energy Group PLC came after a fierce bidding war with Portland-based PacifiCorp. That company dropped out of the bidding because the price was too high. TXU went on to build up its wholesale-power plant, trading business and retail business. The latter was selling electricity directly to consumers all in the U.K. Enter deregulation throughout Britain and Wales. Competition for the large and small consumer increased lowering wholesale-power prices.
In this morning's press release, TXU declared that it took today's "dramatic action to ensure that TXU Corp's credit and liquidity position remains strong."
The slashing of the dividends was needed in order to meet the new requirements of the rating agencies for investment grade credit. TXU believes the money they save by cutting dividends and selling its British affiliate will now be "available for debt reduction."
It was just ten business days ago that the stock was trading at forty dollars. This morning it was trading below twelve dollars. For KERA Marketplace Middays I'm Maxine Shapiro.
Marketplace Midday Reports air on KERA 90.1 Monday - Friday at 1:04 p.m. To contact Maxine Shapiro, please send emails to mshapiro@kera.org.