Constellation Energy Group. Inc. just sold its natural gas trading company to the North American branch of Australia's Macquarie Group. Constellation was one of the largest gas trading businesses and specialized in moving about 10 billion cubic feet of natural gas per day. This company was similar to the specialization of American Barrick in mining gold. One of our questions for the case study on American Barrick was whether the company should switch from a mining company to a trading company. I was reminded of this because Constellation was going to have to increase the amount of capital to stay in the trading business. Instead of changing their business or increasing their capital, Constellation sold the business.
For companies thinking to switch their business strategies, such as Delta, the oil company in our exam, and American Barrick, they must analyze and weigh the costs. For American Barrick we decided that they were very good at hedging their risk in mining and extraction. Maybe switching over to a trading company would hurt their business even though it would eliminate extraction costs. For Delta, the past essay question discussed eliminating their oil price risk. This would force Delta to be better managers. The oil company in our exam was the same as Delta. They could eliminate the oil extraction costs as well and simply sell it. Constellation could not or did not want to switch their business strategy like the possibility with American Barrick. So they sold their company.
http://www.247wallst.com/2009/02/constellation-e.html
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