Iberdrola agrees to buy Scottish Power Plc for 11.6 billion:
Iberdrola SA, Spain's second-largest power company, agreed to buy Scottish Power Plc for 11.6 billion pounds increasing its electricity production by almost a third and adding plants in Britain and North America. Scottish Power shareholders will get 777 pence a share in cash, stock and dividends, or 16 percent more than the Glasgow- based utility's share price on Nov. 7, the day before it said an approach was made. Entering the U.K. market will help Iberdrola be less dependent on Spain, and gaining extra size makes the company less likely to be taken over,'' said Antonio Gallego, who helps manage $7.6 billion at Gesfinmed in Alicante, Spain. Iberdrola, the world's largest producer of electricity from wind, will increase its renewable-power capacity 48 percent with the purchase as European governments tighten limits on carbon- dioxide emissions. The Spanish utility will get a tenth of the energy market in the U.K., Europe's second-biggest economy. Scottish Power last year rejected a takeover bid from German utility E.ON AG. European utility takeovers have surged 33 percent this year to more than $200 billion as companies seek new customers before energy markets open to more competition next year. E.ON is bidding 37.1 billion euros for Spain's Endesa SA, and France's Suez SA and Gaz de France SA plan to merge. Iberdrola's offer includes 400 pence in cash and 0.1646 of a new share for each Scottish Power share, plus a 12 pence-a-share special dividend, the utility said today in a regulatory filing. Share Reaction Shares of Scottish Power, the U.K.'s fifth-largest energy provider, fell after Spanish newspaper El Economista today repeated earlier media reports that Iberdrola would bid 800 pence per share. The stock closed at 740 pence, down 6 pence, or 4.8 percent below the offer, in London. Bilbao-based Iberdrola's shares fell 69 cents, or 2.1 percent, to 32.06 euros in Madrid. The bid values Iberdrola's target at about 11 times earnings before interest, tax, depreciation and amortization, or Ebitda, compared with 6 times Ebitda for E.ON's bid for Spain's Endesa. It's an expensive deal for Iberdrola,'' Andrew Moulder, a senior utilities analyst at Creditsights Inc. in London, said today in an interview. The purchase would be the world's third-largest utility takeover, after the Endesa and Gaz de France transactions. Acquiring Scottish Power would give Iberdrola about 5.2 million customers and 6,200 megawatts of power-generation capacity in Britain, including wind-driven electricity turbines. The combined company will be able to produce about 36,000 megawatts. Wind-Energy Expansion The Scottish utility also owns part of the U.K.'s transmission grid and distribution network, which is the link that carries electricity from the grid to users. Scottish Power operates power-generation and gas-storage facilities in the U.S. and Canada. The combined company would rank ninth in Europe by sales of traded utilities, behind Centrica Plc, and boost Iberdrola's renewable-energy capacity one-half to about 6,000 megawatts. Iberdrola, already the world's largest owner of wind-driven turbines, has sought new capacity, especially in the U.S., where earlier this year it bought three wind-park developers. Chairman Ignacio Sanchez Galan is also developing wind- energy sites in France, Greece and Brazil. The Spanish utility is carrying out studies for a city government in northern China to develop as much as 1,000 megawatts of wind power plants there by 2010. U.S. Investments Galan had planned to about double renewable energy plants to 10,000 megawatts by 2011. He agreed in October to buy turbines from Gamesa Corporacion Tecnologica SA, valued at as much as $4 billion to install in the United States, Spain, Mexico and elsewhere in Europe. Iberdrola is Gamesa's largest shareholder. Scottish Power, which was listed in 1991, is also investing more in wind power. It's building a 322-megawatt onshore wind- power plant to be among the biggest in Europe. Its total wind- turbine capacity in the U.K. is 344 megawatts and it operates or has approval for 808 megawatts, representing more than 80 percent of its 2010 target. PPM Energy, Scottish Power's unit in the U.S., has more than 2,000 megawatts of wind energy in operation or under construction, its Web site says. t's the renewables business in the U.S. that's attractive for Iberdrola,'' Moulder of CreditSights' said. Expected Savings Iberdrola expects to save 130 million euros annually after absorbing Scottish Power. The deal will immediately add to earnings per share, Galan said in a conference call today. Iberdrola assets worth 1 billion euros would be sold, he told journalists in Madrid. ``Synergies are higher than expected,'' Stefan Raetzer, who oversees $890 million at Allianz SE's Deutscher Investment Trust in Frankfurt said today in an interview. Spain's government, which tried to stop E.ON's bid for Endesa, should view the takeover ``in a positive way,'' Spanish Economy Minister Pedro Solbes said in a press conference in Brussels. Spanish companies have in the past two years been snapping up their British counterparts in banking, telecommunications and transportation. Telefonica SA acquired wireless phone operator O2 Plc, the biggest U.K. wireless phone company by customers, for 17.7 billion pounds. Santander Central Hispano SA bought the U.K.'s Abbey National Plc bank, Grupo Ferrovial SA led the purchase of airports operator BAA Plc. Closing the Deal Scottish Power shareholders will get 21.4 percent of the new company's stock, Jose Sainz Armada, chief financial officer at Iberdrola, said today in a conference call. Iberdrola expects the deal to close within five months. Financing for the takeover is arranged as committed debt amounting to 7.96 billion pounds by ABN Amro Bank NV, Barclays Capital and Royal Bank of Scotland Plc, Iberdrola said. Scottish Power rejected an 11.3 billion-pound bid from Germany's E.ON last November. Ian Russell, Scottish Power's chief executive officer at the time, called the bid too low. In January, Philip Bowman replaced Russell as CEO. As head of Allied Domecq Plc, Bowman sold the U.K. liquor maker last year to Pernod Ricard SA for $13.3 billion after a monthlong bidding process. European utilities have drawn interest from investment companies and buyout firms seeking predictable revenue and earnings growth. In October, Arcapita Bank BSC, the Bahrain-based buyout firm, agreed to buy British utility Viridian Group Plc for 1.62 billion pounds as Middle East stock markets dropped. Scaled Down Scottish Power this year scaled down its activities in the U.S. and completed the sale of its U.S. PacifiCorp unit to MidAmerican Energy Holdings Co., a utility controlled by Warren Buffett, for $5.1 billion in cash, making the failed E.ON approach not directly comparable. Europe's biggest utilities including Electricite de France SA, E.ON and RWE AG all own subsidiaries in the U.K. and plan to expand further in Europe's third-biggest power market. They may target remaining British utilities including British Energy Group Plc, Scottish & Southern Energy Plc and Drax Group Plc to achieve further growth. Scottish Power, which started as a generator and distributor called the South of Scotland Electricity Board, dating back to 1955, was advised by Morgan Stanley. Iberdrola was advised by ABN Amro. That mandate is the biggest sole advisory role for ABN Amro, according to data compiled by Bloomberg. Morgan Stanley advised Scottish Power on the Iberdrola deal and a defense against a $20 billion takeover bid from Germany's E.ON AG in 2005. Scottish Power used law firms including Linklaters and Sullivan & Cromwell, while Iberdrola used Allen & Overy LLP; Dickson Minto WS; Latham & Watkins; Milbank, Tweed, Hadley & McCloy; and Uria Menendez. 29.11.06