The proposed sale of Midlands
Electricity’s distribution business
to Scottish & Southern Energy
Prepared by Utility Consultants Ltd
www.utilityconsultants.co.nz
© Utility Consultants Ltd 2003
Disclaimer
This research report is of a general
nature, and is not intended as specific
professional advice. Accordingly, neither
Utility Consultants, nor its’ directors and
shareholders, shall be liable for any loss
or damage arising from action or inaction
based on this research report.
Contents
Disclaimer
History of the MEB
Deal structure
Contents
Structure of
Midlands Electricity
Regulatory implications
Introduction
Interested bidders
Feedback &
Contact us
Introduction
Midlands Electricity
serves 2.4m customers in
Birmingham and the West
Midlands
Operates 60,000km of
lines and cables, and has a
regulatory asset value of
about ₤981m
Annual revenue of about
₤310m, and NOPAT of ₤115m
Acquired by Scottish &
Southern Energy plc in May
2003 subject to bond-holder
approval which did not
eventuate
Proposed industry structure
Color
Company
Market share
LE Group (EdF)
28%
Scottish & Southern Energy
21%
Northern Electric
13%
ScottishPower
12%
Powergen (E.On)
9%
Western Power Distribution
9%
United Utilities
8%
History of
the MEB
Vested as Midlands
Electricity plc
Floated on
the LSE
50% owned by Cinergy
and 50% owned by GPU
Acquired by Avon
Energy Partners
Supply business
sold to National Power
(since re-named Innogy
and sold to RWE)
March 1990
December1990
June 1996
June 1999
GPU buys out
Cinergy’s 50% stake
GPU merges with
FirstEnergy Corp
in November 2001
Utilicorp changes
name to Aquila in
March 2002
July 1999
Midlands Electricity
renamed GPU Power UK
March 2000
Utilicorp offer to buy out
GPU’s interest in Avon
Energy Partners
October 2000
Aquila buys 79.9%
stake in Avon Energy
Partners from FirstEnergy
and renames business
Aquila Networks
Scottish & Southern
Energy acquire Aquila
Sterling for ₤1,112m
subject to bond-holder
approval in early July
May 2002
May 2003
Structure of
Midlands Electricity
Aquila (79.9%)
First Energy (20.1%)
Aquila Sterling
Avon Energy
Partners Holdings
Midlands
Electricity plc
Bonds (ring-fenced
from any repatriation
to the US)
₤360m variable bonds
due in 2006
Bonds
US$250m senior
notes due in 2007
US$250m senior
notes due in 2008
Interested
bidders
Scottish & Southern
Energy plc
YTL Corporation
Initially interested
bidders
Macquarie Bank in
association with United
Utilities plc
PPL (owners of Western
Power) indicated no
interest in increasing
their UK investment
E.On via Powergen
Obvious geographical
fit with former Southern
Electric business
Scottish & Southern
Energy plc
Would incur the ₤32m
penalty for reducing inter
company comparison
Geographical
fit with Wessex Water
business
YTL Corporation
Would avoid the ₤32m
penalty for reducing inter
company comparison
Would seem to ignore
the difficulties of 2 other
multi-utility ventures
Would have alleviated
OFGEM concerns about
operating expertise
Macquarie Bank in
association with United
Utilities plc
Good source of
unregulated revenue
for United
Would avoid the ₤32m
penalty for reducing inter
company comparison
Obvious geographical
fit with former East
Midlands business
E.On via Powergen
Would incur the ₤32m
penalty for reducing inter
company comparison
Scottish & Southern
Energy plc
Short-listed bidders
YTL Corporation
Macquarie Bank in
association with United
Utilities plc
Deal structure
Scottish & Southern
Energy to assume
₤502m in debt
Scottish & Southern
Energy to pay ₤43m cash
to Aquila & First Energy
Deal structured
as follows…
Scottish & Southern
Energy to pay ₤567m
to AEPH bond-holders
Represents about 86%
of the face value of the
bonds that were recently
trading at 78% to 80%
Aquila has an
obligation to pay First
Energy US$95m
Regulatory
implications
Assessment under The
Fair Trading Act 1973 for
reduction of competition
Key regulatory issues
Penalty of ₤32m over
5 years to compensate
for reduced inter
company comparison
The eventual sale
to E.On (Powergen)
Scottish & Southern
Energy were unable to obtain
bond-holder approval, hence
the acquisition bid failed
Aquila Sterling was
eventually sold to E.On via
the UK subsidiary Powergen
A description of this bid can
be downloaded by picking here
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