Global Insight Perspective | |
Significance | Scottish Power and Iberdrola have announced they have reached agreement on a takeover deal that will see Europe's third-largest utility formed. |
Implications | The deal follows closely on the heels of an initial approach by Iberdrola earlier this month, and if successful would bring a number of advantages to both groups. |
Outlook | The two companies will now be looking for shareholder and regulatory approval for the deal and, with the outlook on both these points being reasonably positive, a new group could well be operational in the first half of 2007. |
A New European Giant
Spanish power company Iberdrola has reached agreement to buy the United Kingdom's Scottish Power in a move which will create a new 64-billion-euro (US$84-billion) market player. The deal was announced in a statement this morning that revealed that the companies' respective boards of directors met yesterday to agree the details of the offer. The statement confirmed that the board of Scottish Power found the terms offered by Iberdrola to be fair and reasonable and would recommend the offer unanimously to company shareholders at an Extraordinary Shareholders’ Meeting, likely to be held in the first quarter of 2007. The new group is likely to form in the following quarter. Iberdrola and Scottish Power will also seek approval from relevant regulatory authorities, including the European Commission and the U.S. Federal Energy Regulatory Commission.
The terms of the agreement see Scottish Power shareholders offered 400 pence in cash and 0.1646 new shares of Iberdrola (valued at 365 pence at yesterday's market closing) for each share they hold. In addition, the Scottish Power Board is to approve a 12-pence-per-share dividend before the transaction goes through. The 777-pence cash-and-shares offer, just under the 800 pence estimate that many observers had predicted earlier this month, values the company at £11.6 billion. The offer also provides for a "mix and match" facility, whereby shareholders can opt for a variable mix of cash and shares, subject to the elections made by other shareholders.
Iberdrola chairman Ignacio Galan noted the deal was compatible with both companies' strategic plans and the groups would be able to "achieve prompt synergies and access economies of scale in the medium and long term through common systems and processes". Chief executive of Scottish Power Philip Bowman said the deal would allow the company to "expand into other territories, diversify its operating risks, obtain greater economies of scale and have the financial strength necessary to invest in major infrastructure that will be necessary in the coming years".
Outlook and Implications
Confirmation of the offer and agreement follows a whirlwind courtship between the two firms, with Scottish Power only confirming at the beginning of this month that it had received a takeover approach (see United Kingdom: 9 November 2006: Iberdrola Rumoured to be Behind Surprise Move for Scottish Power).
The agreement is likely to bring a number of key benefits for the companies: geographic diversification, with neither company holding a substantial presence in the others dominant markets; greater economies of scale, providing them with the resources necessary to operate in the increasingly competitive European energy market; and operational synergies, with the companies estimating the deal will result in savings of 130 million euro per year from lower financial and operational costs, improvements to generation and distribution units, and better management of renewable facilities.
No details have yet been provided of the board's plans for a new structure for the group or for the prospect of employment losses, although Iberdrola was careful to note in its statement that Scottish Power's management team and employees would be "indispensable" in carrying out the transaction and it expects them to "continue to play a vital role in the company's future development". Indeed, with the companies largely residing in separate markets they seem well placed to keep job losses to a minimum, and regulatory concerns over market dominance are also likely to be reduced.
The new merged group will have an installed capacity of 36,600MW of which over 6,000MW will be renewably generated and, according to Galan, will be the third-largest utility in Europe.