Scotland v Germany in power struggle for TXU

E.ON, the German energy company that owns Powergen, and Scottish & Southern are the front-runners to buy the retail business of troubled electricity group TXU Europe.

This evening TXU executives will decide on their plan to get the company out of its cash crisis. They are hoping to fetch a price of £1.5bn for the retail business, which has four million electricity customers and one and a half million gas customers. However, the presence of onerous contracts to buy electricity at high prices, coupled with fears of involvement by competition regulators, are thought to have pushed the price down.

Scottish Power has decided not to bid after evaluating the assets. German company RWE was also thought to be interested.

TXU has the options of restructuring the debt and electricity supply agreements from power stations like Yorkshire's troubled Drax power plant, or selling off parts of the business, or going into administration. NM Rothschild is handling the bids for the retail business, while Ernst & Young is understood to have been appointed by TXU to advise on the possibilities for restructuring and administ- ration. The company counts Alan Bloom, the insolvency specialist who dealt with the Railtrack administration, as a partner. KPMG is understood to be advising the banks.

Standard & Poor's has downgraded TXU Europe's credit ratings to CC, saying it believes it is unlikely to achieve a debt and electricity supply restructuring, and that its assets will sell for less than the estimated £3bn liabilities.

The group is likely to put its German assets up for sale once it sorts out the UK business. These include Berlin power retailer Area and majority stakes in two stadtwerken, local utilities that supply electricity, gas and water.

Centrica, which is keen to break into the German market, would be a likely bidder for TXU's German operation.