Scottish & Southern weighing up move into US market

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The Independent Online

Scottish and Southern Energy, Britain's second biggest electricity company, has turned its sights on the US and is weighing up the idea of a "merger of equals" with an American utility.

Scottish and Southern Energy, Britain's second biggest electricity company, has turned its sights on the US and is weighing up the idea of a "merger of equals" with an American utility.

The group, which owns Hydro-Electric in Scotland and Southern Electric, has begun sounding out shareholder reaction to a major expansion into the US market.

But Jim Forbes, Scottish and Southern's chief executive, stressed yesterday that any deal in the US would take the form of a nil-premium merger. He also said that the group's priority before any overseas move was to expand further in the UK.

Scottish and Southern has set itself a target of growing to 5 million electricity customers and 2 million gas customers and has £2.5bn available to buy either an electricity distribution business or a second electricity supply company. It bought Swalec from British Energy for £210m earlier this year. Mr Forbes also said that Scottish and Southern would consider entering the water industry, although its preference would be to take on the management of water networks rather than buy water businesses because of the "risks" involved in owning assets.

Scottish and Southern has resisted following the lead of its UK counterparts, ScottishPower, PowerGen and National Grid by acquiring a US electricity business. But Mr Forbes said: "We realise our skills are transferable to new markets. At this stage the US looks the most interesting market."

Ian Marchant, the group's finance director, stressed that work on a US expansion was at a very preliminary stage and that Scottish and Southern has not got as far as identifying potential takeover targets.

Announcing an 8 per cent increase in half-year profits to £213m, Scottish and Southern also said it planned to expand its financial services division, Simple2, next year by adding mortgages, life assurance and Individual Savings Accounts to the stakeholder pensions already offered. The group is also growing its telecoms business and has struck deals with the mobile operators Vodafone and One2One to hang telecom masts on its network of substations and pylons. The medium-term plan was to float the non-electricity businesses.

Meanwhile, Viridian, the owner of Northern Ireland Electricity, outlined aggressive plans to reduce its dependence on the power market by expanding non-core businesses and its presence in the Irish Republic. The expansion of Viridian's information technology division Sx3, its financial services arm Open + Direct and its telecoms joint venture Nevada could see electricity sales falling from 75 per cent of group sales to half over the next two to three years. Interim pre-tax profits fell 9 per cent to £41m after higher interest and goodwill charges and losses in telecoms.

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