ScottishPower shares surge on £12bn Spanish approach

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The Independent Online

ScottishPower, Britain's fifth biggest energy supplier, has received a £12bn takeover approach from the Spanish power giant Iberdrola which values the company at more than 800p a share.

The Spanish approach for ScottishPower could flush out other bidders, including the legendary US investor Warren Buffett, who is known to be interested in the company. Mr Buffett bought ScottishPower's US subsidiary PacifiCorp for $9bn earlier this year.

Sources said that as many as half a dozen companies could throw their hats in the ring and it was not clear whether Iberdrola would necessarily succeed with an offer.

Iberdrola is Spain's second largest electricity company, and a proponent of creating a single European market in energy.

News of the approach sparked a surge in ScottishPower shares. The stock rose by as much as 19 per cent at one point to reach 798p, before falling back to close 9 per cent higher at 730p. A year ago Scottish Power rejected a takeover bid from E.ON of Germany worth 570p.

E.ON, which already owns Powergen, and its German rival RWE, the parent company of npower, had earlier denied they were behind the approach. But along with other potential bidders Scottish & Southern Energy, France's EDF and the state-owned Swedish energy company Vattenfall, they could throw their hats in the ring.

ScottishPower said it had received an approach "which may or may not lead to an offer" but said there was no certainty of an offer being made. It declined to identify its suitor or comment further.

The company, which has 5.2 million UK customers and a thriving wind power business in the US, has been vulnerable to a bid since it disposed of PacifiCorp earlier this year. In January it ousted its long-standing chief executive Ian Russell, who left with a £5m pay-off, and brought in Philip Bowman, the former chief executive of Allied Domecq. The move was widely seen as an indication that ScottishPower was still up for sale and that Mr Bowman had been hired to secure the best price or break it up.

Mr Russell was instrumental in rejecting the bid from E.ON as inadequate. He is thought to have insisted on an offer which valued ScottishPower at 650p-700p. Since his departure from ScottishPower he has looked at entering the world of private equity himself.

Share prices of utility companies have soared this year following a spate of takeover bids for infrastructure-type businesses with secure and regulated long-term flows of income. The value of energy companies in particular has benefited from a sharp rise in wholesale power prices.

Should the approach to ScottishPower lead to an offer, then a number of rival suitors may emerge. However, E.ON, RWE, EDF and Scottish & Southern would all face regulatory hurdles because they already have significant shares of the UK energy supply market. For this reason, EDF has all but ruled itself out of another big UK acquisition. Scottish & Southern would face particular competition issues north of the border where its market share would rise to more than 70 per cent.

ScottishPower is due to report its half-year results next Tuesday and will be under pressure then to divulge more details of the bid approach to investors.

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