Bidding war looms as Innogy rebuffs approach from RWE

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The Independent Online

Innogy, the UK's largest electricity supplier, is in talks with rival energy groups that could see the company sold for more than £3bn.

The company, which competes with TXU and Centrica in energy supply and Powergen in electricity generation, said yesterday it had received several approaches "which may or may not lead to an offer", after the disclosure it had conducted talks with the German utility RWE last year.

Brian Count, Innogy's chief executive, is thought to be pursuing parallel talks with competing companies, but has rejected an initial offer from RWE as too low. RWE, Germany's second-largest utility group, bought Thames Water for £4.3bn in 2000.

It was unclear yesterday whether Mr Count's role in any enlarged group had been discussed.

Innogy owns the npower brand and was formed when National Power demerged its overseas assets into a new company, International Power, in October 2000. The company also owns several UK power stations.

Its shares hit a high of 237p just before 11 September – a premium of 45 per cent to their first day's closing price – having gained investor favour on the back of hopes for Regenesys, a project to build a fuel cell capable of bulk electricity storage rather like a giant rechargeable battery. The shares closed on Friday at 210.25p, valuing the group at £2.36bn.

RWE declined to comment on Innogy yesterday, although a spokesman said that the group was interested in expanding its four core areas of electricity, water, gas and waste management in Europe and the US.

Analysts said bidders may be willing to push the price of Innogy up to a 40 per cent premium to its current share price, or £3.3bn. Last year, Powergen agreed to a £5bn offer from E.ON, RWE's domestic rival.

There was some scepticism about the scope for any acquiring company to achieve cost savings from a deal, since Innogy has already been pushing through an efficiency programme of its own.

ScottishPower yesterday said it had held merger talks with Innogy over the past year, but added that it had told the company it did not wish to pursue a combination "at the present time".

Others likely to be casting a slide rule over the company include Scottish and Southern Energy, the French Utility EDF and Italy's Enel, Europe's largest quoted power company. Analysts also said any tie-up between these companies and Innogy might only be a prelude to an even larger merger.

Mr Count has long advocated consolidation within Europe's energy industry, which has been looking to the energy supply industry for growth opportunities. Since the introduction of the New Electricity Trading Arrangement (Neta) in March last year, wholesale energy prices have been on the slide. "If you are vertically integrated and have balance, it doesn't matter where the margin sits," one industry expert said yesterday.

Innogy doubled its UK customer base to more than 7 million last year by buying Yorkshire Electricity and swapping its electricity distribution assets for the retail business of Northern Electric. The deals have left the company with a £2.4bn debt pile.

One senior industry insider said: "I'm not surprised the Germans are looking at Innogy. They've got lots of money and Innogy is the easiest of the independents to snap up."

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