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************************************************************************ Get a complimentary premiere SourceBook Weekly Issue at: http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html Not just news; analysis. ************************************************************************ New SCIENTECH PowerHitter interviews with David M. Stoner and Dr. Michael J. Denton, CEO, President and Vice President of Caminus Corporation, are now available. Find out more at: http://www.consultrci.com ************************************************************************ =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH IssueAlert, December 12, 2000 Powergen and LG&E Complete Merger By: Will McNamara, Director, Electric Industry Analysis =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Powergen of the United Kingdom and LG&E Energy Corp. of Louisville, Ky., have completed their merger and have formally begun joint operations. LG&E will maintain its headquarters in Louisville, which will serve as the=20 headquarters for Powergen's North American operations. LG&E Energy's utility subsidiarie= s, Louisville Gas & Electric and Kentucky Utilities Company, will continue as separate subsidiary corporations with joint operations and with=20 headquarters in Louisville and Lexington, Ky., respectively. ANALYSIS: Although referred to as a "merger," Powergen actually has acquire= d LG&E, a strong utility based in the Midwest that remains focused on all three core sectors of the electric utility business (generation, transmissi= on and distribution). Powergen, which generates about 14 percent of the=20 electricity used in England and Wales, is a company with clear intentions to expand internationally. The company currently has electric and gas operations in Europe, India, Asia and Australia. Together, the Powergen / LG&E=20 combination reportedly will have assets of nearly $14 billion and total revenues of $9 billion, serving four million customers worldwide. The partnership marks the third acquisition of a U.S. electric utility by a foreign company, following ScottishPower's purchase of PacifiCorp and National Grid's purchase of the New England Electric System (NEES), both in 1999. It appears that with each subsequent foreign acquisition of a U.S. utility, the regulatory hurdles needed to complete the deal have become easier to pass. Powergen's reasons for wanting to acquire assets in the United States arise from needs similar to its U.K. counterparts. In the last ten years that have elapsed since the privatization and subsequent deregulation of=20 electricity in the United Kingdom, the electric sector has become completely competitiv= e in all areas, including domestic customers. Just as in U.S. deregulation, concerns about market power have restricted the domestic growth of U.K. companies, which is compounded by the limited size of the U.K. energy marke= t. Consequently, companies like Powergen have developed unique skills both in the United Kingdom and overseas so that they can expand scale through opportunities abroad. Powergen had wanted for some time to penetrate the U.S. market and evaluated potential partnerships with several energy compan= ies in this country, including Cinergy and Houston Industries (now Reliant), which all fizzled. LG&E is particularly appealing to Powergen because of the U.K. company's desire to establish a strong presence in the Midwest market. LG&E should be a good partner for Powergen, as the latter gains access to approximately 3.7 million customers. In addition, LG&E owns equity in and operates=20 non-utility power plants in six states as well as in Spain; owns interest in three natural-gas distribution companies in Argentina; and owns CRC-Evans Pipelin= e International, a provider of specialty equipment to the natural-gas and oil pipeline construction industry. Altogether, LG&E's two utilities and numerous unregulated businesses total about $5 billion in assets, which should support any further expansion that Powergen might have in mind. Perhaps Powergen's primary rationale for the acquisition is that the compan= y values LG&E's comparatively low-cost power production and high standards regarding reliability and customer service. Yesterday (Dec. 11) marked LG&E Energy's last day of trading on the New York Stock Exchange. Shareholders on record should receive letters of=20 transmittal from Powergen's paying agent, Computershare Trust Company of New York, containing instructions for submitting their stock certificate for the agreed-upon cash payment of $24.85 per share. An additional payment of 25.276 per share will also be paid to LG&E Energy shareholders on record as of Dec. 8. Powergen reportedly paid about $3.2 billion for LG&E, and assumed an=20 additional $2.2 billion in LG&E debt. During the merger process, there was a lot of speculation about how Powergen had financed the acquisition of LG&E, despit= e its disclosure of divesting key assets=01*such as overseas interests, its metering business and two U.K. power stations=01*to generate liquid capital= . During the course of the regulatory approvals needed for the acquisition, Standard & Poor's kept Powergen's debt position under scrutiny, although its increased market potential and divestitures did help to offset any significant downgrades in its ratings. Moving forward, it will be interesti= ng to see how the company's rating changes now that the acquisition has been completed. We have witnessed only three case of foreign acquisitions of U.S. utilities= =01* and all are still fairly new=01*so consequently it is hard to say if this mixtu= re of two foreign corporate cultures will work. As an example of difficulties that Powergen might face, ScottishPower encountered a multitude of=20 difficulties assimilating into the culture of the Northwest regarding its purchase of PacifiCorp. In addition, although PacifiCorp and National Grid both have claimed that they intend to become major players in the U.S. markets throug= h their acquisitions of U.S. companies, that has yet to materialize. Where the combined company goes from here is unknown. It is possible that Powergen will continue to secure assets in the Midwest since it has claimed that this will be a key area of expansion. Another possible strategy is developing its telecom business. Powergen announced its move into the U.K. telecommunications sector earlier this year. Powergen's joint venture with Affinity Internet Holdings is supporting the development of Internet produc= ts and the establishment of fixed and mobile telecommunications along with multi-utility billing solutions. Thus, speculation has been raised that the company may develop this area of its business in the United States as well. It is certainly only a matter of time before another foreign compa= ny attempts an acquisition of a U.S. utility. Consequently, many eyes will remain on the Powergen / LGE combination as it should be a good indicator of how successful or problematic such partnerships will be. =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Feedback regarding SCIENTECH's IssueAlert and SourceBook Weekly should be sent to wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D ********************************************************************* Reach thousands of utility analysts and decision makers every day. Your company can schedule a sponsorship of IssueAlert by contacting Nancy Spring at nspring@scientech.com or (505)244-7613. Advertising opportunities are also available on our website. ********************************************************************* SCIENTECH's IssueAlerts are compiled based on independent analysis by=20 SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investment decisions of any kind. SCIENTECH's sole purpos= e in publishing its IssueAlerts is to offer an independent perspective regard= ing the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, pleas= e reply to this message and type "delete" in the subject line.
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