Scottish and Southern Energy is reported to be in £11 billion takeover talks with a state-owned Swedish power giant.

The firm, which is the UK’s second biggest power company, is understood to be holding talks with Vattenfall, according to the Mail on Sunday. The move follows years of speculation linking the two groups, but the talks are thought to be at an early stage, and any takeover is understood to be depend on the outcome of an auction of Dutch energy firm Nuon. Vattenfall is currently bidding for Nuon, Holland’s second biggest energy company, and the Scottish and Southern Energy talks are reported to be a fall-back position if it is unsuccessful. Stockholm-based Vattenfall is one of the leading energy producers in northern Europe and it is has a huge cash fund for acquisitions. It is understood to have wanted to move into the UK market for some time. A Scottish and Southern Energy spokeswoman declined to comment on the speculation. No-one from Vattenfall could be contacted. On Friday Scottish and Southern Energy became the second UK energy firm to announce price cuts for its customers, following an earlier move by British Gas.

The group, which has nine million domestic customers, said it was reducing average electricity prices by 9% and gas prices by 4% from March 30, due to lower wholesale energy prices. It also said it was on course to deliver a “modest” increase in adjusted pre-tax profits on the £1.23 billion it made in the year to March 2008. The firm made £302.6 million in the six months to September 30, but expected to make the bulk of its profits in the second half of the financial year as the price hikes and higher winter demand took effect. It also plans a rise of at least 9.1% in its full-year dividend.

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