GPU, the US utility group, is considering the sale of its Midlands Electricity power distribution business in the UK, which some bankers believe could fetch L1bn ($1.51bn).
GPU has come under greater pressure to dispose of the business after last month failing to sell its Australian electricity and gas assets. Last year, Midlands Electricity’s supply operations were sold to National Power, the generator.
GPU is reviewing all of its businesses outside its core electric utility business, serving 2 million customers in New Jersey and Pennsylvania. That review is part of a move announced in October to rebalance its capital structure. The group would like to reduce its debt to capital ratio to 60 percent from its current 67 percent.
Analysts believe potential purchasers for the Midlands Electricity business could include utilities such as PowerGen, Scottish Power, Scottish & Southern and Severn Trent.
Also on the market is Norweb’s electricity supply business, which is being sold by United Utilities for between L300m and L400m.
John Reynolds, a director in the global energy and project finance group at Credit Suisse First Boston, the investment bank, said: “There are big economies of scale in bringing together different distribution networks.”
Analysts believe the failure to sell the Australian assets has prompted GPU to move disposal of the UK business, now called GPU Power, further up its priority list.
GPU said: “We don’t have an immediate plan to sell Midlands.” But it added that it was reviewing those assets as part of an overall review of its non-core holdings.
The group has disappointed investors recently. The shares trading at $27, down from its 12-month high last June of $44-5/8. US groups encouraged by the liberalisation of the power market have spent more than L15bn buying British electricity assets since 1995. More recently they have been questioning their involvement in a sector expected to become increasingly competitive.
Recent power sector disposals by US energy group’s have included Energy’s L1.9bn sales of London Electricity to EdF, the French state-owned electricity group.
GPU said it would analyse other options to get liquidity from its Australian assets, such as issuing equity or preferred stock.
It also said it would consider sales of other holdings, including its independent power plants, of which it has six in the US and two in Latin America. It indicated that the possible sale of those assets would take priority over the sale of GPU Power but that the review was in “pretty early stages”.
Analysts said sale of GPU Power would not be easy. “If they are looking to sell Midlands, they wouldn’t be able to sell it for a gain,” said Barry Abramson, utility analyst with PaineWebber in New York. Reuters