International Power and GDF Suez boards finally agree takeover deal

INTERNATIONAL Power, one of the last few remaining UK-owned energy firms, is set to fall into foreign hands after agreeing a merger with French-group GDF Suez.

The company, whose portfolio of UK generation assets includes a major coal-fired site in Staffordshire, will be 70 per cent owned by GDF under the deal to create one of the world's biggest independent power generators. The agreement, which is expected to be completed early next year, will leave just Scottish & Southern Energy and British Gas-owner Centrica as major UK-owned energy producers.

The new business, which will combine International Power's 45 power stations and the international assets of GDF, will continue to be listed on the London Stock Exchange with GDF as its majority shareholder.

GDF, which is 35 per cent owned by the French government, will pay a special dividend of about 90p a share, worth 1.4 billion, to International Power's shareholders as part of the deal, which is structured as a reverse takeover.

Discussions between the two sides collapsed in January after they were unable to agree terms and the UK company's biggest investors reportedly demanded a greater element of cash in any deal.

International Power chairman Sir Neville Simms said the tie-up involved two "world-class businesses" with a complementary geographic presence.

As well as International Power's 34.4 gigawatts of capacity, GDF Suez Energy International will provide 32.7GW to the new business through its strong positions in regions including Latin America and North America.

International Power has no presence in Latin America, while GDF will gain a stronger position in the UK and Australia. There are also projects in place for an additional 22GW of capacity.

International Power floated on the London stock market in October 2000 after a demerger from National Power that also created the energy company Innogy.

As well as the Rugeley site in Staffordshore, it is the majority owner of the First Hydro hydroelectric plants at Dinorwig and Ffestiniog in North Wales, a gas-fired station at Saltend, near Hull and generating stations across the world.

The company also yesterday reported half-year profits of 524 million, a drop of 5 per cent on a year earlier after strong contributions from operations in Australia and the Middle East were offset by weaker profits in North America.

The Europe division, including its UK operations, saw underlying profits improve 10 per cent after a "significantly" improved performance at Rugeley.

An improved credit rating following yesterday's deal will mean International Power pays less for its debt and will find it easier to fund expansion.

The enlarged company, which will continue to be led by chief executive Philip Cox, is expected to generate cost savings of about 165m a year.

The French company said the tie-up will make it the world's largest power company by revenues and second largest by generation capacity.

Control of another UK utility by a foreign company could reignite debate about security of supply issues after nuclear power station operator British Energy was bought by French energy giant EDF in 2008. Although Perth-based Scottish & Southern Energy is one of the last independent utilities, chief executive Ian Marchant recently insisted that the company was not vulnerable to takeover.

Shares in International Power closed down 7.4p at 372.6p. They have risen by more than 30 per cent since a proposed deal was first announced.