Powergen move could open door to US deal

POWERGEN, the electricity group, yesterday surprised the City with an overhaul of its corporate structure which could pave the way for a deal with a US company.

The group is to set up a new holding company with no operating activities, which will oversee its generation, distribution and international businesses.

Sources close to the company said the presence of a holding company would bring Powergen into line with most of its US counterparts. They said that the restructured group would find it easier to merge or strike a deal with a similarly structured US group.

The change would also free up some capital, which could be used for acquisitions or share buybacks, the sources said. The move would also ensure that Powergen's generation and supply activities were kept separate, following the pounds 1.9bn purchase of the regional supplier, East Midlands Electricity.

The overhaul, which needs to be approved by shareholders, will provide "clear financial and regulatory boundaries around different operating areas," the company said.

Powergen owns power stations and sells electricity to a number of regional companies, including East Midlands. At the time of the acquisition the Government urged the group to establish a clear distinction between the two sides.

However, some City analysts criticised the move. They said that the presence of a holding company would make it more difficult to gauge the progress of the integration of East Midlands into the group and make financial reporting less transparent.

"Maybe they want to merge in the States, but [the overhaul] will also cloud the view of the acquisition costs and the time it would take to reap the benefits of the East Midlands acquisition," said one.

The decision to set up the holding company comes after Powergen decided to change its year-end from March to December - a move which was attacked by analysts because it would complicate Powergen's figures.