Entergy Spinning Off Nuclear Operations (ETR)

Entergy Corp. (NYSE:ETR) is trading up over 2% right after the open.  The power utility reported earnings, but perhaps even bigger than earnings is the news that the $24 Billion market cap power company is spinning off its nuclear operations.

On Nov. 3, 2007, Entergy's Board of Directors approved a plan to pursue a separation of the non-utility nuclear business from Entergy's regulated utility business through a tax-free spin-off of the non-utility nuclear business. SpinCo, the term used to identify the new company yet to be named, will be a new independent publicly-traded company. In addition, SpinCo and Entergy Corporation intend to enter into a nuclear services joint venture, with equal ownership.

Entergy Nuclear earned $160.9 million, or 80 cents per share, on as-reported and operational bases in third quarter 2007, compared to $106.9 million, or 50 cents per share, in third quarter 2006 for as-reported and operational earnings. The improved results in third quarter 2007 came from increased revenues from pricing and the production available from Palisades, acquired in the second quarter of this year, and the positive effect of a lower tax rate in the current period. Partially offsetting this increase was reduced production as a result of additional unplanned outage time at Vermont Yankee. In addition, Palisades entered a planned refueling outage on Sept. 9, 2007. There were no refueling outages in third quarter 2006.

Entergy Corporation's shareholders will own 100% of the common equity in both SpinCo and Entergy. SpinCo's business is expected to consist of the non-utility nuclear assets, including the Pilgrim Nuclear Station in Plymouth, Mass., the James A. FitzPatrick and Indian Point Energy Center plants in Oswego and Buchanan, N.Y., respectively, the Palisades plant in Covert, Mich., and the Vermont Yankee plant in Vernon, Vt., and a power marketing operation. Entergy Corporation's business will consist of the current five regulated utility operating subsidiaries, System Energy Resources, Inc., the related services subsidiaries System Fuels, Inc., Entergy Operations, Inc. and Entergy Services, Inc., and the remaining Entergy subsidiaries. The newly-created joint venture is expected to operate the nuclear assets owned by SpinCo. The joint venture is also expected to offer nuclear services to third parties, including decommissioning, plant relicensing and plant operations for the Cooper Nuclear Station and others.

The joint venture operating structure for SpinCo ensures that the core nuclear operations expertise currently in place at each of the non-utility nuclear plants will remain after the spin-off. Entergy Nuclear Operations, Inc. will supplement its application filed July 30, 2007 with the Nuclear Regulatory Commission, seeking indirect transfer of control of the operating licenses for the non-utility nuclear fleet, to incorporate the planned business separation. Entergy Nuclear Operations, Inc., the current NRC-licensed operator of the non-utility nuclear plants, would remain the operator of the plants after the separation. Entergy Operations, Inc., the current NRC-licensed operator of Entergy's utility nuclear plants, will also remain in place as a wholly-owned subsidiary of Entergy and will continue to be the operator of the utility nuclear plants. The decision to retain the existing operators for the nuclear stations reflects Entergy's commitment to maintaining safety, security and operational excellence.

M&A and private equity's appetite to chase anything and everything under the sun may have diminished drastically, but 'other' special situation investing in spin-offs, break-ups, reorganizations is heating back up.  You can sign up for a trial to the 24/7 Wall St. Special Situation Investing Newsletter.

Jon C. Ogg
November 5, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.