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PowerGen buying LG&E
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February 28, 2000: 1:50 p.m. ET
U.K. energy group bids $5.4B for Kentucky utility to gain U.S. foothold
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LONDON (CNNfn) - British electricity and gas producer PowerGen agreed Monday to acquire Kentucky-based LG&E Energy in a deal valued at $5.4 billion in cash and assumed debt.
The deal marks the latest foray by the consolidating U.K. power sector into the $230 billion a year U.S. market, the world's largest, and will expand PowerGen's existing international operations in Europe and Asia. It ends a two-year attempt by PowerGen to enter the increasingly liberalized U.S. market.
PowerGen is paying $3.23 billion cash for LG&E Energy, whose chief asset is Louisville Gas & Electric, valuing its shares at $24.85 each, a 58 percent premium over their 15-3/4 close Friday. PowerGen, Britain's second-largest electricity producer, also will assume $2.2 billion in LG&E Energy debt.
LG&E (LGE: Research, Estimates) generated a net profit of $62.1 million last year on sales of $2.71 billion. Its shares have tumbled more than 30 percent over the past six months. But they rallied Monday after the announcement, up 6-1/8, or 39 percent, to 21-7/8 at around 1 p.m. ET on the New York Stock Exchange.
PowerGen aims to complete the deal by the start of next year and launch a divestment program to reduce its debt, which will rise to nearly 5 billion pounds ($8 billion). PowerGen (PWG) shares slumped 2.75 percent by mid-morning to 424 pence.
"This deal ends PowerGen's long search for a bride in the states...But they are going to have put together a package of assets to sell, which is a slightly messy way to raise money," Williams De Broe analysts Nigel Hawkins told Reuters. "It's not quite selling the family jewels; it's like selling
the cousin's jewels," he added.
Like its U.K. peers, PowerGen has pursued a U.S. acquisition to broaden its revenue stream from a domestic market hit last year by new re regulations that are set to depress earnings and have sent shares in the sector sharply down. The stock has lost half its value over the past year.
Scottish Power (SPW) last year acquired Oregon-based PacifiCorp (PCX: Research, Estimates) for $12 billion while National Power (NPW) announced plans in January to invest $600 million to build two U.S. power stations.
PowerGen Monday also announced a 10.9 percent rise in pre-tax profits to 580 million pounds, at the top end of expectations among analysts polled by Reuters. Sales climbed 15.9 percent to 3.75 billion pounds. 
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PowerGen
LG&E Energy
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