By the OGJ Online Staff
HOUSTON, Apr. 10--Germany's E.ON AG said it will acquire the UK's Powergen PLC in a 8.2 billion euro ($7.41 billion) deal that will create the world's second largest electricity service provider, after state-owned Electricite de France.
E.ON said it will offer Powergen shareholders 765 pence ($11), an 8.4% premium over Friday's closing price, plus it agreed to accept 7.1 billion euros in debt from Powergen's acquisition of Kentucky-based LG&E Energy Corp.
The acquisition will give E.ON entre into the US market, the first such substantial venture by a continental European utility. E.ON was formed in 1999 through the merger of German utilities Veba AG and Viag AG.
E.ON said the acquisition represents a "important platform for growth in the US utilities market," in addition to reducing the company's reliance on the German market.
Ulrich Hartmann, E.ON chairman, said the acquisition of Powergen is one major step, but not the last in its international growth strategy. He noted the company will have 30-40 billion euros it can use, depending on how fast the company can dispose of noncore assets. Hartmann indicated an interest in the industrialized US Midwest which makes up one-third of the "highly fragmented" US market.
E.ON has set a 3-5 year timetable to sell nonenergy businesses and redeploy the proceeds in the growth of its utility activities. The company presently derives half its market capitalization from oil, chemicals, real estate, and electronics.
Powergen has reduced its generation interests in the UK to about 10% of the market, down from 20% just a few years ago to concentrate on developing an integrated business with interests in generation, trading, distribution, and retail services.
Independent power producer Powergen purchased LG&E Energy Corp. in December 2000 for $3.2 billion in cash. LG&E owns 8,263 Mw of generating capacity, including 6,492 Mw that is still regulated. The US business serves 1.2 million electricity and gas retail customers. It also has interests in gas and oil pipeline equipment and gas processing.
Powergen and E.ON first said they were in talks 4 months ago, but they were slowed by concerns about US rules regarding utility ownership. E.ON said it will make a formal offer for Powergen early next year, once the deal receives regulatory approval in the US, the UK, and the European Union. The companies said they hope to complete the transaction in 2002.
Hartmann will become chairman of the merged companies and of Powergen, while Powergen CEO Nick Baldwin will continue as operating head the UK unit of the company.