Scottish Hydro primes pounds 450m takeover bid

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The Independent Online
Scottish Hydro-Electric said yesterday it had secured a two- to- three-year borrowing facility to finance its bid for First Hydro, the pumped storage business put up for sale by the National Grid.

The bid, thought to be in the region of pounds 450m, would take the company's gearing to between 80 and 90 per cent and would reduce interest cover from its current 30 to less than 5 times.

Scottish and its two rival US bidders must hand in bids for First Hydro by Monday next and the result is expected fairly soon thereafter. The three bidders were selected from an original list of 11, having submitted the highest opening bids prior to due diligence.

Scottish Hydro's opening offer was reported to have been pounds 450m, while Mission Energy, one of the two U.S. contenders, was said to have made a first offer of pounds 600m.

News of Scottish Hydro's banking facility came as the company announced an 11 per cent rise in underlying profits in the six months to September. Reported profits were actually up sharply from pounds 34.9m to pounds 61.7m, but the previous year's figure was distorted by the cost of an pounds 18.8m premium paid to redeem a tranche of government debt.

Lord Wilson of Tullyorn, chairman, said: "The second half of the financial year has started satisfactorily and we are confident of an encouraging result for the full period."

Strong underlying earnings growth had come mainly from improved sales thoughout Britain which had offset the real price reductions in most markets. Sales volumes to domestic customers in Scotland increased compared with 1994, reversing the negative impact of VAT last year. Commercial and industrial volumes also increased, but real price reductions offset the benefit so that total turnover in Scotland fell slightly.

Sales in England and Wales grew strongly. Volumes increased by 18 per cent and turnover rose even more, by 21 per cent. More than a third of the company's total electricity sales and 30 per cent of total turnover is accounted for south of the border.

On the proposed bid for First Hydro, John Gray, finance director, stressed that the opening bids were not binding, and said Scottish would not be prepared to pay pounds 600m for the business. "We are not going to get into some emotional contest ... we are not going to overpay for it," he added.

Elsewhere on the investment side, Scottish Hydro is committed to installing a combined heat and power plant at Salt Union's premises in Cheshire at a cost of pounds 25m. At East Lancs Paper the company is investing pounds 16m in CHP equipment.