Iberdrola, the Spanish energy group formally launched its long-awaited £11.6 billion takeover offer for British rival ScottishPower, but disappointed investors with a cash and shares bid that came in lower than expected.
While ScottishPower shares initially jumped 1.5 per cent higher on the bid, worth 700p a share, they then fell more than 1 per cent. Observers had been expecting an all-cash bid worth 800p a share.
If successful, the takeover will create Europe’s third -largest utility. Integrating the business into Iberdrola is expected to be finalised by the second quarter of next year.
Iberdrola made on mention in its public offer document of the future for Philip Bowman, Scottish Power’s chief executive. However, it is understood he will stay on to help with the integration process and then afterwards offer his services as a consultant.
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Mr Bowman, who received a £15 million windfall from the takeover of Allied Domecq just 18 months ago, is likely to receive about £5 million from today’s deal . He joined the utility earlier this year.
Under the offer, shareholders will receive 400p in cash and 0.1646 of a new Iberdrola share for every ScottishPower share. ScottishPower will also declare a 12p special dividend before the takeover is finalised. This will take the total consideration to 777p.
The offer will also include a mix and match facility allowing shareholders to vary the proportions of cash and shares they receive.
Iberdrola, which has embarked on the acquisition to fuel its global expansion plans, also expects to make £88 million costs savings and £30 million in capital expenditure savings every year. It is understood that the deal will provide £200 million a year in goodwill benefits.
Ignacio Galan, chairman and chief executive of Iberdrola, said: “We will be able to achieve near-term synergies and access economies of scale in the medium and long term through common systems and processes.
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“The new group will be well positioned for the future European energy market and will enjoy a strong growth platform in Spain, the UK, continental Europe, North America and the global market, particularly in renewable energy, a sector in which it will be a world leader,” Mr Galan said.
Mr Bowman said: “While ScottishPower has demonstrated strong performance across all its businesses over the past 12 months, consolidation activity has resulted in massive change within the European utilities landscape.
“ScottishPower needs to expand its geographical presence, diversify operating risks, achieve greater economies of scale and have the financial strength to invest in substantially larger infrastructure projects over coming years.”