US utility set to bid pounds 3.6bn for Energy Group

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The Independent Online
Energy Group, the company that owns Eastern Electricity and the US coal producer Peabody, is set to be taken over for pounds 3.6bn by the giant US utility PacifiCorp, it emerged last night.

In a brief statement to the Stock Exchange, Energy Group, which was only demerged from Hanson in February, disclosed that it was in talks which could lead to a recommended offer from PacifiCorp at a 20 per cent premium to yesterday's closing price.

The statement, released after the stock market had closed, was made at the insistence of the Takeover Panel and followed a sharp rise in the company's share price in the past few days. Energy Group closed 16p up last night at 580p compared with a low for the year of 466p. The shares are likely to open today much closer to the indicated offer price of 700p.

If the offer goes ahead it will be the first big test of the Labour Government's attitude towards a takeover of a regional electricity company by an overseas utility. Seven of the 12 RECs are already owned by US power companies and Eastern would make it eight. Apart from owning Eastern, which Hanson bought for pounds 2.5bn in August 1995, and Peabody, Energy Group is also Britain's fourth-biggest electricity producer with a 12 per cent share of the generating market.

PacifiCorp is one of the biggest utilities in the US with a market capitalisation of $6bn (pounds 3.7bn). Based in Portland, Oregon, it supplies electricity in seven western states and also owns a telecoms company, Pacific Telecom, serving 10 states in the west of the US.

Energy Group has been the subject of persistent bid speculation since it was spun off from Hanson and indeed there were rumours before the demerger that it was being lined up for a trade sale.

Likewise, PacifiCorp was linked with any number of REC takeovers during the bid frenzy that has seen most of the sector change ownership in the past two years but it never actually made an offer.

Nigel Hawkins, utilities analyst with Yamaichi, said: "I'm not surprised that talks have been taking place. Energy Group is one of the relatively few vertically integrated utilities in the UK." Energy Group was spun off in February - the last of the four divisions of Hanson to be demerged - and is listed in London and New York. It made operating profits of pounds 466m on sales of pounds 3.8bn in the year to September 1996.

Eastern is Britain's biggest REC with 3 million customers. Energy Group is also a major player in the generating market since buying 6,000 megawatts of capacity from National Power and PowerGen. Since the demerger it has acquired the US electricity trading company Citizens Power, which is based in Boston for pounds 75m.

PacifiCorp employs 12,000 and earned $505m in net income on revenues of $4.3bn in 1996.

Talks between the two companies are being led by Energy group's executive chairman, Derek Bonham, and Fred Buckman, president and chief operating officer of PacifiCorp. Energy Group is being advised by Lazards and Morgan Stanley and PacifiCorp's advisers are Goldman Sachs.

Energy Group had been due to announce its first-half results tomorrow but said that in the circumstances it would not now be reporting them until the outcome of the discussions with PacifiCorp was settled.

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