Marathon Oil Co., Houston, is on the receiving end of a significant CMS Energy Corp. (NYSE: CMS) divestment. CMS plans to change its business strategy significantly in the hopes of strengthening its balance sheet, provide more transparent and predictable future earnings and lower its business risk by focusing future growth primarily in North America. Specifically, the Dearborn, Mich., integrated-energy company plans to sell its nonstrategic international power-generation assets and its two South American electric-distribution businesses. Marathon plans to buy its entire oil and gas interest and a methanol plant in Equatorial Guinea for approximately $1 billion. (For more on these assets, see the May 2001 cover story, "Equatorial Guinea.") Marathon will receive a 52.4% interest in and operatorship of the Alba Field, which is estimated to contain recoverable reserves of 5 trillion cu. ft. of gas and 300 million bbl. of condensate. CMS currently produces 16,000 bbl. of condensate and about 2,400 bbl. of liquefied gas per day from the field. Marathon also will get several undeveloped discoveries and undrilled prospects as well as CMS' interest in a condensate separation facility, a processing plant, and a methanol production plant. CMS chairman William T. McCormick says, "With these actions to address underperforming investments and our new, more-focused strategy and improved balance sheet, we believe the company is well positioned for future success." CMS isn't alone in reconsidering its portfolio. Semco Energy Inc. (NYSE: SEM) of Farmington Hills, Mich., plans to concentrate less on acquisitions and more on making existing businesses grow. The redirected strategy will involve selling certain engineering and construction businesses that are not likely to generate additional shareholder value in the near-term, Semco president Marcus Jackson says. It also will include placing Semco's two gas utilities in Michigan and Alaska under one president and eliminating other duplicate administrative functions. The actions come as investors who previously demanded high growth now emphasize stable returns and minimal risk as the national and world economies move into recession. "Given uncertainty, which Wall Street hates, the preference now is for low-risk operations," says David E. Parker, who follows gas and electric utilities for Robert W. Baird & Co. Inc. "There will be a turn in the cycle and demand will increase for higher-growth businesses with more risk. But under deregulation, everyone can't be a big winner. Now that we're getting bad news from companies that tried to be everything to everybody, it makes more sense to limit risk and concentrate on what you do well." John Olson of Sanders Morris Harris in Houston says, "Depending on the chapter and verse you want to cite, the companies either are heading in that direction themselves or the stock market is leading them there. Companies like Enron Corp. and CMS have had foreign misadventures that they will continue to monetize at a time when conditions in Latin America and Southeast Asia are getting measurably worse instead of better. Williams Cos. Inc. (NYSE: WMB) was smart by spinning off its telecommunications operations when it did. Southern Co. (NYSE: SO), with Mirant Corp. (NYSE: MIR), and Reliant Energy Inc. (NYSE: REI), with Reliant Resources Inc. (NYSE: RRI), took similar actions with their unregulated businesses." UtiliCorp United Inc. (NYSE: UCU) is buying back the 20% of unregulated utility Aquila Inc. (NYSE: ILA) it sold this spring. Thomas Hamlin of Wachovia Securities in Richmond, Va., says, "This happens with utilities all the time. It's an acknowledgment that not everyone's going to succeed with diversification. CMS met with a good degree of success for some time, but obviously has decided to retreat. Companies also need support of the capital markets if they plan to diversify. Without that, growing through acquisitions becomes very, very difficult." But he's not convinced every investor will embrace that approach. "I think we've just finished a period where conservatively managed utilities were attractive. The market's need for safety has made dividend yield more important. But some high-profile disappointments in the unregulated merchant-power area have caused investors to step back from the group." Several Wall Street utility analysts cautiously applaud CMS's move. Peter Case of CIBC World Markets Inc. characterized it as a major realignment. "We view these plans favorably, but believe investors will want to see evidence that the plan can be executed before according the stock a valuation comparable to that enjoyed by its peers." Daniel Ford of Lehman Brothers Inc. calls the move necessary and prudent, but retains his Market Perform rating of CMS common shares. "Although we applaud the proposed actions, they are a long time coming. Investors have a very long memory and CMS admittedly has been long on ideas and short on execution. Sentiment and credibility undoubtedly will continue to weigh on the stock." Parker says, "I think it's good news. It eliminates some uncertainty for the company. CMS has recalibrated its direction several times the last few years. I think this moves it in a direction it can execute. It removes the risk of international operations. When you add construction, currency and execution risk to projects that have 25-year lives, a lot of things can change. Making the strategy simpler is good. But CMS still needs to address other risk, namely financial leverage, in its operations." The news certainly is good for Marathon. As for Semco's plans, it will continue to pursue gas-storage and transmission business which leverage its current assets and management expertise. The propane business will continue to be evaluated for profit-enhancing initiatives and long-term strategic fit.