Energy Group boosted by takeover speculation

Hanson's electricity and coal mining empire marked its historic split from the conglomerate yesterday with a better-than- expected rise in profits and a strong boost to its share price.

The surge reflected takeover speculation surrounding Eastern Group, the regional electricity company which forms one of Energy Group's main assets, following the US takeover bid launched for Yorkshire Electricity yesterday. Hanson bought Eastern, one of the UK's largest privatised power suppliers, in 1995 for pounds 2.5bn.

Energy Group shares jumped 43.5p to 568.5p compared with Friday's closing price on the unofficial grey market, an increase of more than 8 per cent and valuing the company at pounds 2.96bn. Energy Group investors received one share in the new group for every 10 they hold in Hanson.

However, investors were also relieved that Energy Group played down speculation that it was about to launch a big spending spree in the US. In a clear break with his Hanson past, Derek Bonham, Energy Group's executive chairman, made clear he was only planning smaller-scale acquisitions in the US in the next few weeks running into "the tens of millions of dollars rather than the hundreds of millions".

The news was interpreted as an attempt to calm fears that an aggressive takeover policy would sharply raise the group's debts. Outlining demerger plans last month, Energy Group executives had said the company was evaluating substantial investments in US generation. It already owns Peabody Coal, the world's largest privately owned producer of coal. The most likely short-term opportunity remains the purchase of an American power marketing company. Sources suggested discussions had gone beyond the due diligence stage and the two sides were now "negotiating on price".

Energy Group revealed a 38 per cent rise in operating profits to pounds 138m in the three months to the end of December. Earnings from the electricity businesses more than doubled from pounds 23m to pounds 57m, reflecting Eastern's purchase last year of coal-fired power plants from National Power and PowerGen.

Eastern also said it now supplied 40,000 gas customers in trials of domestic competition in the South-west and South of England. However it did not disclose possible losses made on gas contracts last year in the industrial market, where it is second only to British Gas. Eastern was hit by the unexpected rise in the price of gas in 1996, having signed contracts to supply fuel to industrial customers at low prices.

Meanwhile profits from the coal businesses in the US and Australia were unchanged during the quarter at pounds 25m. Energy Group confirmed plans to pay a final dividend for the year to the end of March of 5.5p.