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PacifiCorp To Acquire The Energy Group for $9.6 Billion

Fortnightly Magazine - August 1997

PacifiCorp has made a cash offer for The Energy Group PLC, a diversified energy company in the U.K., Australia, and U.S. The boards of directors of both companies unanimously approved the transaction, valued at $9.6 billion in debt and equity.

PacifiCorp Holdings Inc., a wholly owned subsidiary of PacifiCorp, is offering $11.35 per share for The Energy Group. PacifiCorp will assume The Energy Group's $3.8 billion of debt in the transaction. Upon deal completion, PacifiCorp will have 5 million electric and gas customers, 17,000 megawatts of generation capacity and more than 10 billion tons of coal reserves.

The Energy Group only became available to such deal making in February, when it spun off from parent company, Hanson PLC. The Energy Group was formed from the merger of the fourth largest electric generator in Britain, the Eastern Group, and the world's largest, private coal producer, Peabody of the United States. Peabody is a low-sulfur coal producer with more than 9 billion tons of reserves in the U.S., and 260 million tons in Australia. Eastern is one of Britain's largest electric distribution and supply companies and provides natural gas service to about 40,000 retail customers. At the time of the spin off, the British press gave much ink to The Energy Group's plans to target U.S. power plants for acquisition.

PacifiCorp said it will sharpen its focus on the energy sector through sale of its Pacific Telecom subsidiary to Century Telephone Enterprises Inc. for $1.5 billion in cash. It will also take on Pacific Telecom's debt.

In response to the acquisition, Standard & Poor's placed the ratings of PacifiCorp, PacifiCorp Holdings, PacifiCorp Australia, Pacific Telecom, Eastern Electricity, Peabody Australia Holdings, and Century Telephone Enterprises on CreditWatch with negative implications. Standard & Poor's noted that it expects the transaction to be largely debt-financed. If the acquisition is consummated, S&P will apply a consolidated rating method to PacifiCorp due to its transformation into an international energy business. The result, according to Standard & Poor's, is that credit ratings for the new PacifiCorp family, including Eastern Electricity, could be clustered around the low triple-B category. Some difference higher or lower could occur, recognizing either regulatory insulation or structural subordination. (em LB


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