UtiliCorp to buy Midlands Electricity for $2.1bn

Kansas-based electricity and gas group UtiliCorp said Thursday it was to buy UK power distributor Midlands Electricity, for a total price of $2.1bn.

UtiliCorp said that it had made an offer to FirstEnergy to purchase, with a financial partner, GPU, Inc.’s wholly-owned Avon Energy Partners Holdings subsidiary, the holding company for Midlands Electricity.

Midlands Electricity is the fourth-largest regional electricity company in the United Kingdom and serves 2.3 million network customers. The offer is subject to FirstEnergy’s acceptance following completion of its merger with GPU, anticipated by year-end.

UtiliCorp and its financial partner expect to acquire all of the outstanding shares of Avon Energy Partners Holdings. Assets to be acquired include Midlands Electricity’s 38 000-mile electric distribution network, an investment in the 1875 MW Teesside Power generating plant in the United Kingdom, and investments in other energy businesses.

The purchase price would include the assumption of approximately $1.7bn of debt that would be off-balance sheet to UtiliCorp and non-recourse to UtiliCorp and its partner and approximately $362m of equity to be provided by UtiliCorp and its partner on a 50/50 basis. UtiliCorp expects to account for its investment under the equity method of accounting.

“We are extremely pleased about this opportunity to add Midlands Electricity to our international network operations,” said Robert K. Green, president and chief operating officer of UtiliCorp. “We expect this investment to be accretive to UtiliCorp’s earnings and give us added confidence in achieving our financial objectives in 2002. This acquisition provides UtiliCorp a strategic platform for expanding its operations in Europe similar to our growth in Australia, where we made our initial investment in United Energy in 1995.”

“This proposed transaction is consistent with our strategy of focusing on the north-east quadrant of the United States, where we see our best opportunities for growth,” said FirstEnergy Chairman and Chief Executive Officer H. Peter Burg. “At the same time, it strengthens our financial position through a substantial reduction in debt.”

Midlands Electricity serves the city of Birmingham and parts of Staffordshire, Gloucestershire, Shropshire, Hereford and Worcester. For the year ended March 2001, Midlands Electricity’s sales tallied approximately $570m and its earnings before interest and taxes totalled about $275m.

Morgan Stanley is serving as financial advisor to FirstEnergy and Deutsche Bank is serving as financial advisor to UtiliCorp. Completion of the purchase would be subject to the receipt of the applicable regulatory approvals.

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