Despite losing to Texas Utilities in an attempt to acquireBritish power giant The Energy Group earlier this year, PacifiCorpshowed yesterday it has not lost its taste for things British. Thistime, however, it’s on the other end of a merger deal. The companyagreed to a friendly takeover by ScottishPower, Scotland’s largestelectric utility, for an estimated $7.9 billion in stock.ScottishPower also will assume PacifiCorp’s $4.9 billion debt.
Both companies have tried and failed to complete transatlanticmerger deals. ScottishPower made a failed attempt to merge withFlorida Progress Corp., formerly Cinergy. Although PacifiCorp hassuffered through 1998 with losses from its failed merger bid andits unregulated marketing operations, ScottishPower seessignificant synergies in a combination.
Under the terms of the PacifiCorp transaction, ScottishPowerwill pay $25.13 per PacifiCorp share, or a 23% premium based onyesterday’s stock price. The deal will give Scottish Powershareholders 64% ownership of the combined company. The remaining36% will be owned by PacifiCorp shareholders. Either company mustpay a $250 million fee if the deal is terminated under certaincircumstances.
The Scottish utility serves about five million gas, power, waterand telephone customers in Great Britain and has a marketcapitalization of about $13.5 billion. In comparison, PacifiCorpserves 1.4 million electricity customers in Oregon, Utah, Wyoming,Washington, Idaho and California and another 550,000 electricitycustomers in Australia. The aggregate value of PacifiCorp is $12.8billion, including debt. The combined company, which would be knownas ScottishPower, would have 7 million customers and 23,500employees worldwide. It would be based in Glasgow and would retainthe Scottish Power name. PacifiCorp also would retain its name.
PacifiCorp said the deal does not alter its plans to sell TPCCorp., its gas marketing and storage business, and its easternelectricity business to concentrate on core western electricoperations. “With ScottishPower, we will be able to pursue moreeffectively our strategy of concentrating on our core electricitybusiness, improving performance and efficiency and increasingservice levels for our customers,” said CEO Keith McKennon. The$750 million share repurchase program previously announced byPacifiCorp will not be pursued, however.
Since PacifiCorp lost its bid to acquire The Energy Group inMay, the company has had an increasingly difficult year. Totalpretax costs of its failed bid for the British company were $199million. But that was only the beginning. On Oct. 23, PacifiCorp announced plans to exit its unregulated energy trading business andits other unregulated energy development businesses. It recorded a$151 million loss for these businesses and reported a net $92million loss for the third quarter. In addition, PacifiCorpannounced during the summer it was selling its electric serviceareas in California and Montana-two of the seven states where itcurrently operates. The two states account for 76,000, or 5.5%, ofPacifiCorp’s 1.4 million North American customers. It sold theMontana assets to Flathead Electric Cooperative but the Californiasale has not been completed.
Last month it appointed a new CEO, replacing Fred Buckman withKeith McKennon. PacifiCorp’s stock is down more than 20% this year.However, it still has a strong asset base that featurescompany-owned coal production, low cost coal-fired andhydroelectric generation, a large transmission grid that connectsto more than 50 other utilities and a large wholesale power salesoperation.
“PacifiCorp is an ideal partner for ScottishPower,” saidScottishPower CEO Ian Robinson. “The company combines an attractiveasset base and customer profile with a core utility businessoffering substantial scope for improved efficiency. It isvertically integrated and in an economically attractive region.ScottishPower believes that it will create significant value forshareholders by transferring its proven skills in improvingcustomer service and reducing costs to PacifiCorp’s businesses.”Robinson said there would be some downsizing and staff reductionsfrom the deal.
ScottishPower’s Murray Stuart will continue to be Chairman ofScottishPower. Robinson will be CEO, and Ian Russell will be deputychief executive and finance director. Alan Richardson, currentlymanaging director, Power Systems at ScottishPower, will become thenew CEO of PacifiCorp. Richard O’Brien will become president andcontinue as COO of PacifiCorp. McKennon, currently chairman, CEOand president of PacifiCorp, will join the ScottishPower board asdeputy chairman, together with two non-executive directors fromPacifiCorp. The PacifiCorp board will be reconstituted as anexecutive only board, chaired by Robinson, with ScottishPowerhaving the majority of seats.
The companies expect to have shareholder meetings in the springof 1999 and close the deal next fall.
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