TXU Corp., Dallas, extended its European reach Thursday buying United Utilities' Norweb Energi retail electricity unit for $464.3 million in cash. Analysts praised the deal which will create the UK's largest electricity and second largest energy retailer with over 5.6 million customer accounts.
"It was a smart move," says Ed Tirello, a utilities analyst with Deutsche Banc Alex. Brown, New York. "You need large volumes of customers to play in the retail business. I don't think they overpaid. It will produce a tremendous amount of savings with cost cutting."
The market also appeared to approve the transaction. TXU stock was up 9/16 to 33 1/8 in mid-afternoon trading Thursday. As part of the deal, TXU Europe will assume responsibility for Norweb Energi's power purchase agreements, against which there was a provision of 176 million pounds on March 31 2000.
TXU will add Norweb Energi to its existing UK regional power supplier Eastern Electricity. It is also buying Germany's Kiel power utility and has been investing in Spanish operator Hidroelectrica del Cantabrico (Hidrocant�ico). Hidrocant�ico is the fourth largest integrated Spanish energy company with assets in Asturias, in northern Spain.
The company has about 520,000 electricity customers and over 115,000 natural gas customers with 1999 sales exceeding 7,600 gigawatt-hours of electricity. It has over 2,100 Mw of installed electric generation capacity with generation market share of about 7%.(OGJ Online, July 3, 2000)
All UK customers have been able to choose their energy supplier since 1999. The retail business is the nonregulated sale of electricity and natural gas, while the delivery systems�distribution and transmission wires and pipes�remain regulated.
TXU Europe has contracted its customer services operation to Vertex, United Utilities' customer services business, for the next 7 years. TXU Europe will now be responsible for providing electricity and natural gas to customers, while Vertex will handle the related customer services operation.
"This is a good deal for us which achieves two objectives. It gives us the scale we wanted to compete successfully in the UK energy market and to optimize costs," TXU Europe Chief Executive Phil Turberville said in a statement.
TXU's successful bid ends months of speculation over who would buy Norweb Energi. Others reported to be in the running were UK utilities British Energy PLC, National Power PLC, Scottish & Southern PLW and ScottishPower PLC.
Shares in United Utilities were up by 12 pence, or 1.8%, to 682 pence in late morning trade. The stock has been an underperformer in its sector so far this year.
The acquisition will be funded initially from internal sources and ultimately through asset sales, TXU said.
