Increased pounds 4bn offer may spark Energy bid battle

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The Independent Online
A bidding war for Energy Group, owner of Eastern Electricity, was in prospect last night after PacifiCorp launched an increased pounds 4.06bn bid for the company.

The offer valued the group at 765p a share - 13 per cent above PacifiCorp's first offer last year. But yesterday shares in Energy Group soared 21p to 775.5p as analysts predicted rival predators would join the bidding, forcing the US utility to improve on its offer.

PacifiCorp made a pounds 3.6bn takeover bid last June, but the offer lapsed after the deal was referred to the Monopolies and Mergers Commission. Since the MMC cleared the link-up, two other potential bidders have emerged in the shape of Texas Utilities, another US power group, and Nomura, the Japanese investment bank.

Fred Buckman, PacifiCorp chief executive, admitted there was a possibility that the rival bidders would wade in with a higher offer, but said Texas did not have a history of "bidding beyond their means".

"I'm prepared for the fact that others might step in ... We've offered pretty good value and on terms that the others will find it hard to compete with."

PacifiCorp also implied that the other suitors still in discussions with Energy Group could face MMC investigations. "Regulatory clearance was specific to PacifiCorp. I'm putting forward a bid which is not going to be referred," said Mr Buckman, adding that PacifiCorp had agreed to sell two Energy Group coal mines in Arizona to satisfy the US regulator, the Federal Trade Commission.

Both Nomura and Texas face opposition from Labour MPs concerned about Eastern's financial security. Privately PacifiCorp believes Texas's nuclear power liabilities, along with Nomura's reputation for complex financial deals, make it likely both bids would be referred to the MMC.

Mr Buckman denied that PacifiCorp would resort to junk bonds to fund the deal. Around $1.8bn (pounds 1.1bn) of the new offer would be funded from PacifiCorp's cash reserves, more than in the previous bid, with the remaining $4.8bn through debt. But it would still leave PacifiCorp with a $15bn (pounds 9.4bn) debt mountain.

Meanwhile, Energy Group yesterday revealed quarterly operating profits of pounds 314m between October and December, up from pounds 221m the year before.

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