Scottish & Southern builds pounds 1.5bn warchest

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The Independent Online
SCOTTISH AND Southern Energy, the company formed by last year's merger of Scottish Hydro-Electric and Southern Electric, has a pounds 1.5bn warchest to spend on acquisitions and has not ruled out buying a water company.

Jim Forbes, the group's chief executive, said it was on the lookout for takeover deals that would add value but that if nothing suitable was identified it would consider returning pounds 600m-pounds 700m of capital to shareholders instead.

A merger of SSE's electricity supply business with another supply business to increase its customer base to around five million is the favoured strategy. But Mr Forbes would not discount a merger with a water company. "We believe we could add value to a project like that," he said. Although SSE is also looking overseas, Mr Forbes said it was very UK-focussed.

He ruled out a bid for National Power's Drax power station, saying the asking price was too high. But SSE is keen to expand its generating portfolio when the moratorium on gas-fired stations is lifted. Once the upgrade of the Seabank power station, owned jointly with BG is completed, SSE will have 7,000 megawatts of plant and 10 per cent UK market share. It is looking to add a further 1,000 megawatts of capacity.

SSE incurred exceptional charges of pounds 170m from last year's merger, including pounds 61m for redundancies and pension top-ups and pounds 35m for advisory fees and stamp duty. About 200 of the 400 redundancies have been pushed through with payoffs averaging over pounds 60,000 a head.

SSE paid pounds 9m in fines for the late opening of its electricity franchise areas. This held back pre-tax profits for 1998 to pounds 463m - a 2 per cent rise. But SSE added a net 400,000 gas and electricity customers, taking its total to 3.7 million.

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