US utilities on Scottish Power hit list

SCOTTISH POWER has drawn up a hit list of around a dozen US utilities it might target for merger talks in a bid to break into the US market.

They include Cinergy, the Cincinnati-based power utility, and Houston Industries, whose attempt to merge with Ed Wallis's PowerGen collapsed recently.

Scottish Power pulled out of a pounds 3bn deal with Florida Progress earlier this year, just days before it was due to be announced, after failing to agree a price. The chief executive, Ian Robinson, is still keen on the US market despite the setback.

Scottish Power yesterday dismissed reports that it had homed in on Cinergy in particular. However, a spokesmen confirmed that the group is still actively looking at the US.

"This is speculation. We have looked at a lot of companies. Things are at the very early stages," he said.

A possible stumbling block in merger talks with Cinergy is its half share in Midlands Electricity, which Cinergy owns jointly with GPU. Scottish Power already owns a rival regional electricity company, Manweb. However, this regulatory issue could be resolved by GPU buying out its partner.

PowerGen is also keen to find partners in the US after the collapse of the Houston Industries talks. Confusingly, PowerGen failed to consummate merger talks with Cinergy last year.

Insiders attribute the failure to a clash of personalities between PowerGen's Ed Wallis and Jim Rogers, Cinergy's hard-nosed chief executive. National Power, long regarded here as a takeover target, is weighing up a US move too.

The $230bn (pounds 140bn) US market is highly fragmented with upwards of 200 companies, many smaller than the big UK players in terms of both sales and market capitalisation.

US companies are coming under pressure to merge and expand overseas because of deregulation and greater competition in their domestic market. UK groups are seen as attractive partners for the US firms because of their greater experience in operating in a competitive energy market. Plans are under way in 16 states to deregulate.

But tying up transatlantic deals has proved much easier said than done. British Energy, the nuclear which is buying one of the reactors at the notorious Three Mile Island site in a joint venture with Peco Energy of Philadelphia and National Power, has established a small foothold in the US. But so far there has been no substantial transatlantic action.