Iberdrola to make £12bn power play

Published on Sunday 12 November 2006 01:05

SPANISH energy firm Iberdrola is expected to table a £12bn bid for ScottishPower, probably this week, though the markets are awaiting a possible rival offer.

RWE of Germany is sitting on a war chest refreshed by the 4.8bn sale of Thames Water and could yet join the fray with an all-cash offer.

Scottish & Southern Energy, the Perth-based rival, may also be tempted, as it risks being left isolated in the consolidating European market, but analysts believe it would struggle to match any cash bid.

Shareholders in ScottishPower are unlikely to oppose an 800p-a-share offer from Iberdrola, likely to be mainly in cash. It is considerably higher than the 671.5p close last Tuesday before Iberdrola's interest was confirmed. It is also a significant premium on the 570p offer from German firm Eon last year. The shares closed on Friday at 741p.

Iberdrola's chairman, Ignacio Sanchez Galan, met ScottishPower chief executive Philip Bowman in London two weeks ago to open negotiations about a potential tie-up.

At a routine board meeting on Friday, extended to five hours due to the developing situation, directors in Spain's second-biggest utility agreed unanimously to continue talks with the Glasgow company that may lead to a bid.

The markets are now on full bid alert and expect an announcement within days.

The two companies are thought to be closing in on a deal that has focused on their growing renewables businesses.

ScottishPower has been regarded as a takeover target since selling PacifiCorp, its American business, last year. Former chief executive Ian Russell ousted most of the board before being forced out himself.

Bowman, who came to the post after selling drinks firm Allied Domecq to Pernod Ricard, was seen as a short-term chief executive who would sell ScottishPower. He denied this and has overseen a significant rise in the share price, which has hovered around 650p for most of the year.

Iberdrola has not been regarded as a particularly acquisitive company. Paul Rogers, a European analyst at Merrill Lynch, said the current management had not made any big acquisitions. "This is something of a shock, because no one was anticipating they would make a bid into the UK," he said.

But the firm has developed a market-leading position in wind power and has big growth plans, particularly in Latin America. It would be attracted by ScottishPower's PPM Energy business in America.

"The real jewel must be PPM," said Rogers. "It would definitely be a market Iberdrola is interested in. PPM makes a lot of sense for Iberdrola."

He said a decision must now be close and an announcement could emerge this week. It is thought by some analysts that the firm will await ScottishPower's interim figures on Tuesday, which are expected to show a further improvement in performance and give the shares another lift.

Clive Roberts, an analyst at Charles Stanley, said: "ScottishPower is now in play. The market is primed for activity. We have seen a lot in the water sector and now it is switching to electricity, where there is more value."