Company Of The Week

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NATIONAL POWER forged an alliance with Spain's third-biggest power company, Union Electrica Fenosa, agreeing to buy 25 per cent of Union Fenosa Generacion, Fenosa's generation business, for Pta97bn (pounds 412m) cash and Pta75bn in assumed debt.

Both companies gain a strategic partner to strengthen their hand in competing in Spain's deregulating market, and in bidding in the Iberian peninsula and overseas. They said they plan to invest jointly in electricity-generation markets in France and Italy. and the two immediately said they will bid for control of a third utility, Italy's state-owned Enel.

At the same time, Fenosa said it will lead joint expansion in Latin America, while National Power will seek and exploit expansion opportunities elsewhere. The agreement ends Fenosa's year-long search for an international partner, as the Spanish government steps up competition in the energy industry in line with EU rules.

For National Power, its largest investment outside the UK comes just four weeks after it said it would spend $1.6bn (pounds 955m) in the US to build gas-fired power stations.

National Power has been the most aggressive among UK power companies in investing overseas, as it faces increasing competition in the UK market, where it sees little opportunity to grow. In the year ended March 1998, foreign earnings contributed pounds 130m to net income of pounds 582 m.

The company could take over another 5 per cent of Union Fenosa Generacion as it expands. Fenosa is required to spin off its generating unit as Spain opens its energy market to outside competition.

National Power and Fenosa eventually could sell some of the new company, which expects to earn pounds 106m in pre-tax profit in 1999, to investors. Before then, Fenosa could offer National Power a stake in its $135m contract to build and run a gas-fired power plant in Mexico. Copyright: IOS & Bloomberg