Today, I turned on the TV to the news that Duke Energy (DUK) was acquiring Piedmont Natural Gas (PNY) in what appears to be an all cash transaction. Needless to say, this news changed my morning’s agenda to one of research. I first purchased PNY in February 2009 and shortly thereafter enrolled in their DRIP. On price dips I continued to add a little here and there. Last year I came to the realization that their ownership interest in the Constitution and Atlantic Coast pipelines were probably undervalued and increasing my position to 3.17% of the portfolio. Today’s news validated my thought process and opened for trading with about a 39% pop – meaning the market is pricing in a high likelihood of the deal completing 2H 2016.
- Verify the terms of the deal. If it is indeed $60 per share cash, then (verified 27 Oct)
Turn off dividend reinvestment.There is no sense in adding to a fully valued position with minimal upside potential (changed 28 Oct – PNY currently purchases shares in a DRIP at a discount to market. As long as this continues, a slight upside potential is provided)
- Collect the dividends while waiting for the deal to close,
- Remove PNY as a Core portfolio position
- Upgrade FLIC from Satellite to Core
- Add FMBI as a new Satellite position
- Investigate and add a new utility (leading contender is PNW) to my portfolio
- Redeploy the cash received at the deal’s closing.