Firm disappointed over Scottish Power rejection

Powergen owner E.On pulled plans to bid for Scottish Power today after being told a proposed offer worth £11.3bn (€16.5bn) failed to meet expectations.

The German utility said it was “surprised and disappointed” by the rejection from Scottish Power, following extensive talks over the last two months.

Even though E.On twice improved the terms of its offer, Scottish Power said the final price did not match its prospects, while it raised concerns about the length of time any subsequent regulatory inquiry would take to complete.

The tie-up would have added more than five million Scottish Power customers to E.On’s extensive UK portfolio, including nine million Powergen users. The Glasgow-based firm also has a significant number of power generation assets.

Analysts said there remained a chance that rival Scottish & Southern Energy (SSE) could pursue a “tartan merger” with Scottish Power – following speculation this month that SSE was considering a rival offer to E.On.

Scottish Power shares dropped 6% to 536p in the wake of the E.On news, while its chief executive Ian Russell confirmed there had been no other interest.

Mr Russell said the Scottish Power board looked closely at the value of the E.On approach, which eventually priced the UK company at 570p a share – a 9% premium on the mid-price prior to the emergence of its bid interest.

He said: “We managed to get the value of their proposal up but it was not enough, particularly given the extensive regulatory clearances. We feel we have done the right thing by shareholders.”

Scottish Power pointed out it could have taken nine to 12 months to obtain regulatory approval from UK and European authorities and that shareholders were unlikely to receive any payment until the spring of 2007.

E.On chief executive Dr Wulf Bernotat said there was compelling industrial logic to a combination of E.On’s UK business with Scottish Power, which he believed would have been good for customers and shareholders alike.

He added: “We are surprised and disappointed that Scottish Power has chosen to react to our proposal in this way. We had worked hard to put forward a proposal that would have been fair and attractive to the shareholders of both Scottish Power and E.On.”

Clive Roberts, an analyst with Charles Stanley stockbrokers, said Scottish Power had done the right thing to reject an offer below 600p a share, but believed there remained some logic in a tie-up with SSE.

He said: “Given the operational and geographic overlap, this would create enormous potential synergy benefits and cost savings.

SSE, which owns Southern Electric, Scottish Hydro Electric and Swalec, employs 10,000 people in the UK and claims to be Britain’s largest generator of energy from renewable sources.