Outlook: Eastern promise brings on a bidding war

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The Independent Online
WHO said that the Americans' appetite for British electricity companies was on the wane? Two bids in a day for Eastern, the biggest of them all, shows that not even the threat of a profit cap has dulled the taste of the US utilities. While Margaret Beckett, President of the Board of Trade, ponders the situation, shareholders in Energy Group, Eastern's parent company, can sit back and enjoy the ride.

PacifiCorp, which popped out of the Oregon woods with an 820p offer last night, bagging 8.6 per cent of the company in the process, already has regulatory clearance. Texas Utilities, which bid 810p earlier in the day, does not. But unless Mrs Blockit can come up with a plausible excuse for packing Texas Utilities off to the Monopolies and Mergers Commission (dislike of the Dallas Cowboys is not sufficient grounds), then it is open season.

Energy group's shareholders cannot believe their luck. Nine months ago the business was worth only 561p a share. Not much has changed since then. It still consists of a bombed out US coal business and a British utility facing an unpleasant regulatory outlook. And yet the group is worth 45 per cent more.

The official position last night from the Texas camp was that it is considering whether to come back with a higher offer. Erle Nye, the Texas chairman, may be a simple soul (aw shucks, I'm just a country boy in the City). But even he can see that the auction has to stop sometime.

Long-term interest rates have fallen since the bidding auction began last June, which means the Americans can debt finance higher offers. But even so they must be close to overpaying and putting a mighty strain on their balance sheets. Which ever bidder wins this one will need to be regulated like a hawk to make sure Eastern is not raided to pay the price.

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