PacifiCorp threatens to cut bid for Energy

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The Independent Online
PacifiCorp, the US utility bidding pounds 3.7bn for the Energy Group, may cut the price of its offer if the Government imposes extra regulatory curbs before approving the deal.

Margaret Beckett, President of the Board of Trade, is due to receive the Monopolies and Mergers Commission report on the proposed takeover on 21 November. There are growing expectations that although the bid may be cleared, it will be subject to much tougher regulatory conditions. There is even talk of PacifiCorp having to offer price reductions to customers of Eastern, Energy group's regional electricity company (REC), as the price for allowing the bid to proceed.

The bid from the Oregon-based PacifiCorp in June valued Energy Group, which also owns the biggest US coal producer Peabody, at 695.5p. The current share price is 651p.

Mrs Beckett referred the bid against the advice of the director-general of Fair Trading John Bridgeman and the electricity regulator Professor Stephen Littlechild. The decision surprised the City since seven previous takeovers of RECs by US utilities had already slipped through. She defended her action, however, by saying she had concerns "over whether it will be possible to maintain adequate regulatory control over the merged company".

The MMC is thought to be paying particularly close attention to the financing of the bid which would create a group with debts of $12bn, financed partly through junk bonds, and conventional gearing of 300 per cent.

PacifiCorp gave undertakings before the bid was referred to ring fence Eastern so that the debt burden was taken off its shoulders and also to provide separate regulatory accounts.

It is likely to argue against further regulatory safeguards or price concessions because the takeover will not lead to cost savings that can be passed on.