Midlands Electricity bought by Powergen after Southern snub

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Midlands Electricity is to be taken over this week by Powergen, the electricity supplier owned by German utility E.ON, just weeks after bondholders rejected an initial £1.1bn approach from rival Scottish & Southern.

Talks between Powergen, which already owns the East Midlands electricity network, and Midlands Electricity's US owners, Aquila and First Energy, have been going on for some weeks and a deal is set to be announced in the next few days.

This will be the second sale agreed in recent months, but bondolders scuppered the Scottish & Southern bid by refusing to accept 86p in the pound for their £660m of bonds.

Under the terms of the deal, Scottish & Southern had also offered to take on £502m of other debt and give £43m in cash to Aquila and First Energy. That part of the deal particularly annoyed the bond- holders, who are being advised by Close Brothers and the law firm Cadwalader Wickersham & Taft. They believed the cash should have been used to buy out their holdings at a higher price.

It is understood that the bondholders are happy with the terms of Powergen's deal, which will be marginally higher than Scottish & Southern's offer.

The sale will double Powergen's power grid in the UK and comes just a couple of months after E.ON's chief executive, Wulf Bernotat, revealed that the group had a $17bn (£10bn) spending pile.

Had Scottish & Southern secured Midlands Electricity, the deal would have doubled its debt to around £2.3bn. But a committee representing over half of Midlands Electricity's bondholders requested access to the books to carry out due diligence before a crunch meeting in New York last month. Both sides failed to reach consensus and talks with Powergen got under way.