British Utility, PacifiCorp in Takeover Talks

LONDON —  Energy Group, Britain’s biggest electricity distributor, said Tuesday it is in talks to be acquired by Portland, Ore.-based PacifiCorp for about $5.7 billion. PacifiCorp declined to comment.

Energy Group, formed earlier this year through a spinoff of energy assets by Hanson, said any offer would be expected to be priced at a premium of about 20% to its closing share price on the London Stock Exchange of $9.49, or about $5 billion.

The potential acquisition would nearly double PacifiCorp’s size and expand its geographic reach, analysts said. However, many industry watchers said financing such a deal could prove to be complex and might involve asset sales.

“It’s a match made in heaven if they can do it,” said Ed Tirello at NatWest Securities Corp.

He said PacifiCorp might finance part of the deal through the sale of its PTI telecommunications subsidiary, which he estimated could net the company as much as $2 billion.

But Michael Worms at Credit Suisse First Boston said the PTI division is composed mainly of relatively small rural systems and that a buyer could prove difficult to find.

Dan Ford, an analyst with HSBC James Capel, said he believes that in addition to a possible asset sale, PacifiCorp would need to issue equity and debt to finance the deal.

“They would still have to figure out how to issue north of 110 million shares,” he said.

Energy Group has built up a cash reserve of about $1.1 billion, or about a sixth of the estimated purchase price, Ford said.

Ford said the deal would add to PacifiCorp’s earnings. He estimated a post-acquisition increase in PacifiCorp’s 1998 earnings to $1.91 a share, compared with a current estimate of $1.71.

Analysts said the prime target for PacifiCorp is the British company’s Eastern Electricity unit, a regional utility.

“PacifiCorp has always wanted a U.K. acquisition. But it is still hard to tell if integration will be hugely successful,” said Daniele Seitz, an analyst at UBS Securities.

Tirello at NatWest cited synergies between Energy Group’s Peabody Resources Ltd., which mines coal in the United States and Australia, and PacifiCorp’s coal-fired power-generating assets, also located in the United States and Australia.