18 June 2002 – American Electric Power signed an agreement today to sell Seeboard, AEP’s retail electricity and gas supply and electricity distribution subsidiary in southeast England, to London Electricity Group plc (LE Group), one of the largest energy companies in the United Kingdom and owned by Electricité de France.
LE Group was one of four preferred bidders selected to bid in an auction conducted by investment bankers Salomon Smith Barney – the others being TXU, Scottish & Southern and E.ON.
The Seeboard transaction is valued at approximately £1.39bn (approximately $2.03bn). AEP bought Seeboard in 1996 for £1.6bn. Under terms of the agreement with LE Group, AEP will receive UK£670m in cash for Seeboard, and LE Group will assume Seeboard debt of approximately £722m. In addition, LE Group will assume obligations valued at £100m related to a power purchase agreement with Medway Power.
“This divestiture advances our strategy: a balanced portfolio that includes wholesale energy businesses and assets – both in the United States and select international markets – and our strong utility business in the U.S.,” said E. Linn Draper Jr., AEP’s chairman, president and chief executive officer. “The risks inherent to the competitive retail energy business are best undertaken by consolidators like London Electricity Group. Our strengths are in wholesale energy markets,” Draper said.
“The sale of the retail supply business and UK regulated assets strengthens our balance sheet and positions us to grow our asset-based wholesale energy business in North America, the UK and Europe,” Draper said. “We remain committed to the region. We will continue to build our London-based European wholesale energy business and operate the 4,000 megawatts of generation we own in northern England.”
AEP will use the proceeds of the sale to reduce debt by approximately $943m.
AEP will recognize a loss on the sale of approximately $440m in the second quarter, a portion of which may be recognized as an impairment of goodwill under a recent change in accounting rules. Included is a foreign exchange loss of approximately $80m previously reflected in AEP shareholders’ equity. AEP said the sale of Seeboard would not have an impact on the company’s 2002 ongoing earnings guidance of $3.60 to $3.75 per share.
The sale – which includes Seeboard’s electricity distribution and supply business assets, its contracting business, and its 37.5 percent interest in Medway Power Ltd. – is conditional only on the European Commission approving the transaction under its merger regulations. The completion of the sale is expected to take four to six weeks.
Seeboard, headquartered in Crawley, West Sussex, sells electricity and gas to about 1.9 million customers in the UK. The majority of these customers are in Kent, Sussex and parts of Surrey. AEP gained ownership of Seeboard on June 15, 2000, with the completion of AEP’s merger with Central and South West Corp., which had acquired Seeboard in January 1996 for approximately US$2.1bn, including the assumption of Seeboard debt.
LE Group is responsible for the electricity distribution networks in London and Eastern England and supplies energy to nearly 3 million customers. LE Group is owned by Electricité de France (EdF).
The sale of Seeboard is the latest in a string of utility deals, which have seen E.ON moving towards the take-over of Powergen, which supplies customers in the Midlands.
This year, TXU bought Amerada Hess’s electricity supply business while national Grid, the UK power transmission company, agreed to merge with Lattice, the UK gas pipeline company.