Powergen takes pole position after £1.6bn acquisition of TXU

The German utility Eon became Britain's biggest electricity supplier yesterday after its UK subsidiary Powergen paid £1.6bn for the retail power supply business of the troubled energy group TXU Europe.

However, there was an immediate row over the price of the deal. Powergen put the value of the transaction, which also includes three coal-fired power stations and a combined heat and power business, at £1.37bn. But TXU's chairman, Erle Nye, claimed it was worth £1.9bn.

The deal will transform Powergen into the UK's second biggest energy supplier after Centrica, with 8.4 million customers. In electricity, it will be the biggest supplier by some margin, with 6 million customers and a market share of 21 per cent. In gas, it will have 2.4 million customers compared with Centrica's 12.9 million.

Ed Wallis, group chief executive of Powergen, described the purchase as a "stonking good deal" and said the cost per customer worked out at £280. But analysts calculated the cost at nearer £306 per customer ­ which would put it on a par with the price that Electricité de France paid for Seeboard, the electricity supplier based in the South-east.

Powergen has paid £1.37bn in cash and assumed £247m of TXU debt, making a total of £1.62bn. The discrepancy between that figure and the £1.9bn quoted by Mr Nye is that TXU will save £300m in pension costs and other obligations.

Paul Golby, the chief executive of Powergen UK, denied that the deal was a gamble and said it would give the group a well-balanced mix of retail customers and generating capacity.

Mr Golby declined to say what Powergen would do in the longer term with the three coal-fired stations it had acquired as part of the deal ­ Drakelow, near Burton-on-Trent, High Marnham in Nottinghamshire, and Ironbridge in Shropshire.

Powergen closed 25 per cent of its UK generating capacity only two weeks ago, claiming the wholesale electricity market was "bust" because of unsustainably low prices.

Although the TXU deal has not yet been approved by the European Commission, Powergen said Brussels had given it the authority to go ahead because of the financial plight of TXU Europe, which was cut adrift by its US parent company last week.

Mr Golby said job losses could not be ruled out, although he said the pension rights and terms of employment of the 1,900 TXU staff transferring to Powergen would not be affected.

The deal does not include TXU Europe's contractual commitments to buy power from other UK generators at prices which are far in excess and in some cases double the current wholesale market price. These contracts remain with TXU Europe's trading division, which is not part of the sale to Powergen.

Among the generators contracted to TXU are AES Drax, International Power and Scottish & Southern Energy, which alone has an exposure of about £160m. A TXU Europe spokesman said that its remaining UK operations were not going into administration and had cash to keep going while talks with creditors and trading counter-parties continued.

Industry sources said the high price paid by Powergen for the supply arm of TXU Europe would help companies such as S&SE and International Power if the remainder of the business was put into administration.

Mr Wallis hinted that, even though Powergen was now Britain's biggest electricity supply company, it was keen to expand even further, noting that it still owned only one regional distribution network in East Midlands Electricity.