Utility to give back £2bn to investors

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The Independent Online

Scottish & Southern Energy, Britain's third biggest utility, is preparing to hand back as much as £2bn to shareholders after failing to identify a merger partner in the US.

Analysts believe the company, formed from the merger of Scottish Hydro-Electric and Southern Electric three years ago, will proceed with a £1bn to £2bn share buyback in the next six months.

Although the group has been hunting for a US deal for the last year and has looked at as many as 16 companies, it has not succeeded in finding a suitable partner. Industry sources say a "merger of equals" between S&SE and a US utility is not remotely on the cards.

The company admitted yesterday that it would be difficult to pull off a genuine merger with a US group. It also conceded that its balance sheet was inefficient. Net debt is £1.2bn while gearing has fallen to 80 per cent thanks to strong cash generation from its principal electricity distribution, generating and energy supply businesses.

Reporting a 7 per cent increase yesterday in pre-tax profits for the first half, S&SE said savings from the merger would be well ahead of the £140m promised and said it expected to hit the target almost a year early. The company is investing £450m in renewable energy – about half of which will be spent upgrading existing hydro-electric stations and half invested in new wind farms and hydro projects.

S&SE is also launching a fresh drive to win back more domestic customers, particularly in south Wales where it took over the Swalec brand a year ago. The group is losing customers at a net rate of a "few thousand a week", mainly to Centrica and Innogy which have been marketing their British Gas and npower brands very aggressively. S&SE has 3.6 million electricity and 1.1 million gas customers.

Jim Forbes, S&SE's chief executive, said that the Swalec brand had been through so many changes of ownership that it had been "lost". It aims to win back customers through a doorstep selling campaign.