ScottishPower chief nets second windfall as Spanish bid £11.6bn

The chief executive of ScottishPower is set to walk away with a £3m pay-off after the company agreed yesterday to be taken over by the Spanish energy giant Iberdrola in a deal which creates Europe's third biggest utility.

Philip Bowman, who was drafted in to ScottishPower less than a year ago after the ousting of its former chief executive Ian Russell, has turned down an offer to stay following Iberdrola's £11.6bn takeover of the company.

Iberdrola, Spain's second biggest energy supplier, is paying 777p a share - some way short of the 800p the market had expected - in a mixture of cash and its own paper. ScottishPower shareholders are being offered 400p in cash, a 12p special dividend and the rest in Iberdrola shares, giving them a 21 per cent interest in the enlarged company.

Mr Bowman is entitled to £700,000 in severance pay. He also has a further 280,000 shares in ScottishPower worth £2.2m. This is the second pay-off for Mr Bowman in three years after the £15m severance he received for selling the spirits group Allied Domecq to Pernod of France.

Iberdrola said it expected to make £90m in annual cost savings within three years and improve ScottishPower's efficiency by 20 to 30 per cent, provoking immediate fears for UK jobs. But a spokesman for the Spanish company maintained that in the longer term the takeover would create employment through the expansion of the combined business.

The chairman of Iberdrola, Ignacio Galan, a 50-year-old former telecoms executive who owns his own vineyard in Spain, predicted that the ScottishPower deal would act as a springboard for further expansion in Europe and the US.

In total, Iberdrola said that cost efficiencies, savings on capital expenditure and tax breaks on the deal in Spain would deliver €2.8bn (£1.9bn) of benefits, reducing the effective price it is paying for ScottishPower shares to about 650p.

The enlarged company will have a market capitalisation of €46bn (£32bn) and an enterprise value, including debt, of €64bn (£43bn), putting it third in the league table of European utilities behind E.ON of Germany, which owns Powergen, and the French group EdF which also has an extensive presence in the UK energy market.

The market indicated that it did not expect a bidding war to break out over ScottishPower, sending the shares 6p lower to close at 740p. Any rival bidder for the company would have to pay Iberdrola a break-fee of £50m.

The takeover will create a company with 21 million customers and 37,000 megawatts of generating capacity spanning nuclear, coal, renewable and gas. It will be the world's second biggest green energy producer with 5,700 megawatts of wind power.

Union reaction to the deal was mixed. Amicus, the engineering union, warned of industrial action if Iberdrola tried to break up the company and attacked the pay-off for Mr Bowman. But Prospect, which represents 1,500 ScottishPower white collar staff, welcomed the bid, saying that it did not believe a break-up was on the cards.

The Scottish TUC said the takeover would create uncertainty and highlighted the way that it had become far easier for European companies to make acquisitions in the UK than for UK companies to expand abroad.

The ScottishPower deal follows in a long line of recent takeovers of UK companies. Abbey National, O2 and BAA have all fallen to Spanish bidders, while P&O, Associated British Ports and AWG, the owner of Anglian Water, have also been bought by overseas investors.