Enlarge imageBy Mantik Kusjanto and David Cullen
FRANKFURT/LONDON (Reuters) - The country’s fifth biggest
energy supplier Scottish Power
E.ON, Europe’s second-biggest listed utility stock which flagged its interest in acquiring Scottish Power on September 5, said the Glasgow-based firm had rejected it 570-pence-a-share proposal and turned down a request to look at its books.
Analysts and bankers said Scottish Power remained a
takeover target, with some suggesting that E.ON’s local rival
RWE
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"We are surprised and disappointed that Scottish Power has chosen to react to our proposal in this way," E.ON Chief Executive Wulf Bernotat said in a statement.
Bernotat said a tie-up made sense for shareholders in both camps. A spokesman refused to rule out a hostile bid, but said that was not E.ON’s preferred option. Cash-rich E.ON is prevented under UK takeover rules from now making a fresh offer for six months, unless one of a number of conditions is met.
Scottish Power, whose shares fell as much as 9 percent after E.ON’s announcement, said it was unconvinced by the offer.
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At 4:00 p.m. British time Scottish Power shares were down 5.7 percent at 536.9 pence, off a low of 517.5p. E.ON shares rose almost three percent to 80.74 euros amid investor hopes that it might raise dividends instead of spending more abroad.
"We think this sort of news supports the credibility of E.ON management. They have always said that they would not overpay for acquisitions and this appears to be proof of that," West LB analyst Peter Wirtz said.
SCOTTISH POWER STILL A TARGET
In addition to speculation that RWE might be interested in
Scottish Power, bankers said bids from local rival Scottish &
Southern Energy
However Scottish & Southern, whose adviser CSFB has been
monitoring the situation, could prefer to wait, they said,
until it’s digested the acquisition of several gas pipelines
from National Grid
EDF, which owns more distribution -- or local wire -- networks in the UK than E.ON -- could, however, face more regulatory hurdles if it bought Scottish Power than its German rival, the bankers said.
Angelos Anastasiou, analyst at Williams de Broe, said in a note that all the possible bidders would struggle to justify a price higher than that E.ON has already offered.
Anastasiou added that Scottish Power management would have considerable explaining to do to shareholders about why E.ON’s price plus dividends were too low.
"Our conclusions is that E.ON will still probably end up taking over Scottish Power at about 570 pence, but with the bid coming in a few months time," he said.
Scottish Power said Tuesday’s developments had cleared the air, enabling it to get back down to business.
"We have a clear strategy and an organisation that’s looking forward to the challenge of implementing it," it said.
NOT YET OVER
Some analysts said E.ON could return at a later date.
"It would have been a super deal," said Herbert Wertz, fund manager of Generali Asset Management. "E.ON could pay 600 or even 620 pence because it’s strategically important. This shows Bernotat’s financial discipline. That’s positive. But I don’t think that’s the last word."
A takeover of Scottish Power would have made E.ON the largest power generator in Britain and also the biggest in terms of energy customers.
E.ON said it was not allowed to make a further offer for Scottish Power for six months, unless a competing bid emerges, it gains Scottish Power’s approval for a new offer, Scottish Power is itself involved in a large transaction, or if a major deal is announced among other major UK energy players.
E.ON has built a significant market position in Britain through its 15 billion-euro purchase of Powergen in 2002 and its 2003 acquisition of Midlands Electricity for 1.6 billion euros.
Since the start of the year, E.ON shares have climbed 20 percent, in line with the DJ Stoxx European utilities sector index <.SX6P>. But shares of its local rival, RWE, have risen more than 40 percent this year on strong power prices.
Analysts said fears that E.ON might use its ample funds to overpay for acquisitions have dented its shares.
(Additional reporting by James Regan, Matthias Inverardi and Sitaraman Shankar in Frankfurt and Siobhan Kennedy and Mathieu Robbins in London.)
