'The additional shares will allow more individual investors to participate in the wealth creation of the company.' - Bob Gannon, Montana Power chairman and chief executive
Montana Power Co. approved its first stock split in nearly a decade Tuesday afternoon, a 2-for-1 deal which will bring the number of company shares to 110.2 million.
The split has been urged and anticipated for months, said Linda McGillen, the company's director of investor relations.
"What we've been hearing from analysts is a stock split was in order," McGillen said, adding "they've been clamoring for months."
Pending regulatory approval, the split will happen after the close of business on July 16.
The company's stock has risen from $21.38 per share in early 1997 to its close of $70 on Tuesday. It peaked at $85.25 in April.
Boosted by what investors and analysts believed was a greatly undervalued fiber-optic network, the Butte-based utility is evolving into a telecommunications company from its roots as Montana's publicly owned electric and natural gas utility.
That change has led to a different shareholder makeup.
Individual investors for decades bought shares of the only Montana-based company traded on the New York Stock Exchange for its steady dividends. The only safer investment was probably government bonds or savings account at a federally insured bank.
But, as deregulation sweeps through the country, exposing monopolistic utilities to competition for the first time, new investors took notice.
These investors have profit expectations for Montana Power and helped drive the price to new levels.
Such volatility, though, led to an exodus of mom-and-pop investors.
Jim Bellessa, a D.A. Davidson senior research analyst who tracks Montana Power, predicted that individual investors might be lured back to the company now that the price will likely be in the $35 price range.
That's what Bob Gannon, Montana Power's chairman and chief executive, said he wanted.
"The additional shares will allow more individual investors to participate in the wealth creation of the company, while producing a deeper market that may reduce the trading volatility our common shares have recently experienced," he said.
Bellessa said the stock split doesn't mean much, and said the lower price won't scare away institutional investors such as insurance companies and mutual funds.
"There maybe some mystique of the institutional lure of a higher priced stock, but we're still talking about a $35 stock. Not cheap …" he said.
Yet, Bellessa said reinvesting dividends is more desirable for lower priced stock.
On Tuesday, the company also declared a second-quarter dividend of 40 cents per share of common stock, payable Aug. 1 to shareholders of record at the close of business July 9. After the stock split is approved, the company will adjust the dividend to reflect the higher number of shares.
Regular dividends also were declared for preferred stock.
Even with the split, Montana Power still has the authority to issue up to 240 million total common shares.
The last time Montana Power split was 1990, when the price-per-share hit $41.12.
During this year's annual meeting, shareholders gave management the flexibility to issue more shares in case more money was required for something such as an acquisition, Bellessa said.
D.A. Davidson cooled its buy recommendation for Montana Power when the price hit $50 a share. Bellessa said the Great Falls investment firm maintains a neutral rating for the company's stock and predicted Montana Power won't outperform the market this year.
If anything, should the stock split encourage more individual investors, it will stabilize the share price, he said.
As Montana Power's stock splits, the company is about to collect a $1 billion payment from the sale of its coal-fired power plants and hydroelectric dams to PP&L Global.
With so much cash in hand, Montana Power plans to stretch its fiber-optic network across 18,000 miles by the end of next year.
That's putting Montana Power's telecom subsidiary, Touch America, in the same circles as industry giants Qwest Communications International Inc., and Global Crossing Inc.
Those two companies are in a sort of bidding war to
buy U S West and Frontier Corp. and create a massive telecommunications company to offer high-speed cables capable of capturing millions of Internet and telephone subscribers.
"(Touch America) is the same type of systems, maybe not as fancy-dancy as Qwest," Bellessa said, adding that Touch America already does business with Qwest, U S West and Frontier.
But Montana Power, he noted, is still much smaller with a market capitalization - determined by multiplying stock price by outstanding shares - of about $4 billion compared to, say, Qwest's $25 billion.
Wednesday - 6/23/99