National Power in pounds 105m US deal: Acquisition of power station builder is part of pounds 1bn overseas programme
The company said it would spend pounds 1bn in overseas growth by the year 2000. The US deal is by far the largest so far and among the first outside developing countries. 'We want a spread between high-risk, high- reward investments and those offering lower risk with lower rewards,' John Baker, chief executive, said.
The US, while a mature market, was regarded as an important feature in National Power's drive beyond the increasingly competitive generating sector at home.
The acquisition of Tevco will be paid for initially in cash and is likely to be backed by raising long-term debt in the US. City analysts regarded the price paid as high but praised the thinking behind the deal. 'While it is a reasonably full price, from a strategic point of view it makes sense,' said Bill Dale of SG Warburg, who estimated that deal would dilute National Power's earnings by less than 1 per cent in the first year.
Tevco constructs power stations and has shares in seven generation projects, predominantly in the south- east of the US. Of the four largest projects, one came on stream at the end of last year and another two will not be in operation until 1994. The company also sells steam to industry.
Tevco made net profits last year of dollars 2.6m on revenues of dollars 35.3m. Mr Baker said all the projects were backed by long-term contracts to supply customers with the electricity. 'We expect them to make a contribution to our earnings as the projects are commissioned.'
National Power already has interests in generation projects in Malaysia, Pakistan, Portugal and India. Yesterday the company concluded a previously announced deal to take part in a second project in India with a total value of pounds 1.3bn. Through a partnership with Ashok Leyland, a vehicle manufacturer, National Power will operate a 1,000-megawatt power plant in Andhra Pradesh and will take an equity stake in the venture.
In May the company announced a reorganisation to sharpen the focus on overseas expansion, offsetting an expected decline in its market share at home. Mr Baker said he would consider swapping power plants in the UK for plants overseas if any attractive offers were made.
National Power increased its pre- tax profits by 13 per cent to pounds 580m last year, although sales fell by 8 per cent pounds 4.3bn. The company has cut 10,000 jobs since 1990 and plans a further 1,000 cuts this year.
Mr Baker has warned that the company faces an uncertain future in the UK. Nuclear power and independent gas-fired power stations are taking market share at an unexpected rate, while at the same time electricity imports from Scotland are also expected to grow.
Offer, the electricity watchdog, has also placed increasing constraints on the industry, including a requirement that National Power and PowerGen offer plants that they intend to close for sale to potential rivals. Both generators are closing old, coal-fired plants and building new, gas-fired stations that are cheaper to construct and can be operated with about one- tenth of the staff.
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