E.ON cuts off ScottishPower talks

German giant pulls out after three approaches. Scottish company says offer was unacceptable
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The Independent Online

E.ON, the giant German energy company, broke off talks to buy ScottishPower yesterday after the two sides failed to reached agreement on price.

The German utility had offered to pay 570p a share for ScottishPower, valuing the company at £11.3bn, but the board of the Scottish company was insisting on an offer of more than 600p a share. ScottishPower shares fell 5.5 per cent to 538p on the news.

The move leaves no obvious alternative bid for ScottishPower, with the other potential suitors ruled out either on regulatory or price grounds. E.ON's final offer of 570p was the third approach it had made to ScottishPower since confirming in early September that it was considering a cash bid for the company, which has 5 million gas and electricity customers in the UK.

Ian Russell, ScottishPower's chief executive, said the offer had been made "in the last couple of days" but the company had received advice that it was not necessary to inform the stock market of this approach or the previous two.

Mr Russell said the offer was "not one the board felt able to recommend". He refused to say what price would have been acceptable but it is understood that the ScottishPower board was holding out for an offer of between 600p and 630p. Mr Russell said he had spoken to a number of top shareholders yesterday and their response had been "very encouraging".

However, Wulf Bernotat, the chairman and chief executive of E.ON, said he was "surprised and disappointed that ScottishPower had rejected the approach", describing it as "fair and attractive to the shareholders of both ScottishPower and E.ON".

E.ON is now barred under Takeover Panel rules from bidding again within six months. But it said it reserved the right to waive that condition if ScottishPower accepted a rival takeover bid or if any of the other big players in the UK energy market announced a merger between themselves. Sources close to E.ON said it had ruled out making a hostile bid.

ScottishPower has been a big target since it announced the $9bn (£5bn) sale of its troubled US subsidiary PacifiCorp to Warren Buffett in May. The E.ON offer valued ScottishPower at a 29 per cent premium to its price the day before the PacifiCorp sale was announced and a 9 per cent premium to its price on 2 September, the last trading day before E.ON disclosed it was considering an offer.

Of the other potential bidders Centrica, the owner of the British Gas brand, RWE, which owns npower, and the French company EDF have all in effect ruled themselves out. Meanwhile, ScottishPower's rival north of the border, Scottish & Southern Energy, would have huge regulatory hurdles to overcome and is unlikely to offer more than 570p.

Charles Miller Smith, the chairman of ScottishPower, said that aside from price, the other main problem with E.ON's approach was that it would have taken until March 2007 at the earliest to complete the deal, making it even less attractive to shareholders. E.ON disputed this, saying the regulatory issues could have been dealt with more quickly.

The collapse of the talks leaves the ScottishPower management with a huge hill to climb to get the share price back above 600p. But Mr Miller Smith stressed that Mr Russell had the full backing of the board.

As a sweetener for investors, the company announced a more generous dividend policy which will take the payout for this year to 25p - an 11 per cent increase on 2004. ScottishPower also pledged to increase the dividend in 2006 and 2007 by more than 7 per cent.

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