Powergen could spark more bids

By DAILY MAIL REPORTER
Updated:

 

AS Germany's E.On announced its long-awaited offer for Powergen, analysts warned that other UK utilities could follow Powergen into foreign hands.

The German utility will pay 765p for each Powergen share and take on £4.5bn in debt, valuing Powergen at £9.6bn. This is 8% above Friday's closing price and a 26% premium on the price in January, when E.On first signalled its interest.

However, Powergen closed well below the offer at 719 1/2p, reflecting investors' fears that US regulators could scupper the deal.

E.On is anxious to acquire Powergen's Kentucky-based LG&E arm, but the new owner could fall foul of US rules limiting utilities' ownership of businesses outside power. E.On's holdings range from real estate to chemicals, some of which it has pledged to sell.

Peter Atherton at broker Schroder Salomon Smith Barney, estimates the risk of the bid failing at 10% to 15%. Should it fall at the US hurdle, European predators are likely to look toward UK targets without American holdings.

'Innogy is the obvious next candidate,' said Atherton. Shares in Innogy, the UK arm of the old National Power, fell 2 3/4p to 211p. National Grid could also attract attention, although a projected £15bn price tag could frighten all but the largest foreign bidders.

Despite the regulatory risk, analysts see little chance of a counterbidder spoiling the Powergen deal. 'I can't identify anyone who would want to pay' more than E.On's offer, said Atherton. He puts the sum of Powergen's parts at 625p a share 'at best'.

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