Regional power company Pepco Holdings Inc. said yesterday that it was getting out of the telecommunications and cable TV business by selling its 50 percent stake in Starpower Communications LLC. Pepco said it would likely take a "significant" loss when it sells its half of Starpower. Pepco invested $141 million in the company, but acknowledged that the "distressed telecommunications market and changed expectations of Starpower's future performance" mean the market value of the investment is much lower. Dennis R. Wraase, Pepco's president and chief executive, said the decision to sell the investment is part of its effort to "redirect" its investments to energy-related businesses. Through a spokeswoman, Wraase said Starpower had lost "a couple million dollars" for Pepco since its inception.
I believe PEPCO, like several other 'IOUs' (investor-owned utilities) is foolishly exiting the telecom market at the very bottom of the market. I don't argue that PEPCO will necessarily recover its full $141 million investment but it does look like they're liquidating their investment when it's at its absolute lowest value. Intuitively, if their total losses over several years have only been $2 million, PEPCO would be better off holding on a year or two more when its' Starpower assets are likely to be worth several tens of millions of dollars more than they are now.
PEPCO appears to be motivated in part by the financial problems of cable TV overbuilder RCN, the other investor in Starpower. posted by Al Bonnyman
Friday, January 30, 2004#