Spain's second largest utility, Iberdrola, last night acknowledged that it is in merger talks with Scottish Power, Britain's fifth largest energy provider.
After a meeting of the Spanish company's directors in Bilbao the company said: "Iberdrola's board has been informed of the existence of negotiations between Iberdrola and ... Scottish Power, to consider an agreement to merge the two companies."
Earlier in the day it was considering a number of options within the industry, specifically including Scottish Power.
Scottish Power, which this time last year fought off a £10bn approach from E.ON, the German utility which owns Powergen in the UK, disclosed earlier this week that it had received an approach, though it did not disclose the identity of its latest suitor.
The news sent the share price soaring from around 660p to 790p at one stage on Wednesday before they settled back. Last night, ahead of Iberdrola's announcement of merger talks, they were up 14p at 742p.
Scottish Power, which next week is expected to report that first half profits are up 50% to more than £400m, is likely to expect a significant premium to the pre-approach price. Some reports suggest the Spanish company will have to offer at least 800p a share, valuing Scottish Power at £12bn.
Scottish Power has more than 5m customers in the UK and is one of the leading windfarm operators in the UK and the US. It is seen as one of only a few opportunities for foreign companies to buy a significant presence in the British market.
Three of the big six suppliers, Powergen, npower and EDF Energy, are owned by European utility companies, leaving only three - Centrica, Scottish Power and Scottish and Southern Energy as independently quoted companies.
Analysts were divided about the wisdom of an offer at the 800p level. Investment bank WestLB said such an offer "would be very expensive" as the pre-approach price already included a 10% bid premium. But in a note to clients, analyst Paul Rogers at Merrill Lynch said an 800p offer would almost automatically add to earnings.
One big question facing Iberdrola is whether it can win the backing of some of its leading shareholders for an offer for Scottish Power. Spanish newspapers have reported that some shareholders were displeased they had not been informed of the approach to Scottish Power.
That has sparked speculation that Iberdrola chief executive, Ignacio Galán, is staking out an alternative to the prospect of a domestic tie-up with Union Fenosa where Iberdrola's biggest shareholder, the construction company ACS, has a 35% stake. ACS is thought to favour the all-Spanish deal. "It shows (Iberdrola) wants to be in charge of its own destiny and is not wanting meekly to be led into a domestic merger or international deal," Mr Rogers wrote.
Source: The Guardian
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