Midlands Electricity bought by Powergen after Southern snub

Midlands Electricity is to be taken over this week by Powergen, the electricity supplier owned by German utility E.ON, just weeks after bondholders rejected an initial £1.1bn approach from rival Scottish & Southern.

Talks between Powergen, which already owns the East Midlands electricity network, and Midlands Electricity's US owners, Aquila and First Energy, have been going on for some weeks and a deal is set to be announced in the next few days.

This will be the second sale agreed in recent months, but bondolders scuppered the Scottish & Southern bid by refusing to accept 86p in the pound for their £660m of bonds.

Under the terms of the deal, Scottish & Southern had also offered to take on £502m of other debt and give £43m in cash to Aquila and First Energy. That part of the deal particularly annoyed the bond- holders, who are being advised by Close Brothers and the law firm Cadwalader Wickersham & Taft. They believed the cash should have been used to buy out their holdings at a higher price.

It is understood that the bondholders are happy with the terms of Powergen's deal, which will be marginally higher than Scottish & Southern's offer.

The sale will double Powergen's power grid in the UK and comes just a couple of months after E.ON's chief executive, Wulf Bernotat, revealed that the group had a $17bn (£10bn) spending pile.

Had Scottish & Southern secured Midlands Electricity, the deal would have doubled its debt to around £2.3bn. But a committee representing over half of Midlands Electricity's bondholders requested access to the books to carry out due diligence before a crunch meeting in New York last month. Both sides failed to reach consensus and talks with Powergen got under way.