PacifiCorp raises Eastern stakes with pounds 4.35bn bid

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The Independent Online
THE TWO-WAY battle for control of Eastern, England's biggest electricity supplier, reached fever pitch last night after the US utility PacifiCorp came back with an increased 820p-a-share bid valuing its parent company Energy group at pounds 4.35bn.

The bid topped an agreed 810p offer tabled earlier in the day by PacifiCorp's US rival Texas Utilities. PacifiCorp, which already has regulatory clearance to bid for Energy Group, also disclosed that its advisers Goldman Sachs had bought up 8.6 per cent of Energy Group in a market raid. Texas said last night it was considering whether to come back with a higher offer.

The frantic activity sets the scene for a bitter battle between the two US utilities for Energy Group. Its shares rose 28p to 806p last night as the markets calculated that the latest bid was unlikely to be referred to the Monopolies and Mergers Commission and are likely to rise further today.

Eastern is set to become the eighth regional electricity company to fall under US ownership. Assuming one of the two rival bids goes through, it will be the fifth time that ownership of Eastern has changed hands since it was privatised in 1990.

Texas has agreed to sell Energy Group's US coal business Peabody to Lehman Brothers Merchant Banking for $2.3bn (pounds 1.4bn) if the takeover goes through. PacifiCorp, which already has substantial US coal interests, would retain Peabody.

The Texas bid is being funded through a $10.3bn debt facility arranged by Chase Manhattan, Lehman and Merrill Lynch and would create a combined business with debts of $18bn. After the disposal of Peabody and the planned issue of new equity, Texas would have debts of some $14bn and a debt-equity ratio of 155 per cent.

Erle Nye, chairman of Texas, said none of the funding would be in the form of junk bonds and that Eastern would be ring fenced with an independent credit facility and access to low-cost capital. "We will be a net investor in Eastern and we will not be taking funds out of the enterprise," added Mr Nye.

Should PacifiCorp come back with another increased offer then the takeover battle is likely to become even more heated. Mr Nye described reports circulating before its bid that Texas was anti-union as "an unadulterated lie" and defended its record of running nuclear plants in the US.

PacifiCorp began the auction for Energy Group last June, bidding 695p or pounds 3.7bn. The bid was referred to the MMC by the President of the Board of Trade Margaret Beckett in July and cleared last December.

Mr Nye said he was confident that the bid would escape an MMC referral. Texas, he said, had agreed to abide by all the conditions attached by the Office of Fair Trading to a PacifiCorp takeover of Energy Group.

Texas executives have briefed Professor Stephen Littlechild, the electricity regulator, and a number of MPs on the bid. But they have not sought any formal guidance from the Office of Fair Trading or approached the Department of Trade and Industry.

Texas wants to keep Energy Group's senior management on board although there are doubts about whether Mr Devaney will stay long-term once ownership changes hands.

Outlook, page 21