A Good Idea To Sell To Buffet?
Scottish Power sells – at Moneyweek.co.uk - the best of the week's international financial media.
Selling anything to America's legendary investor Warren Buffet should "normally prompt one to think twice", says Lex in the FT. But not Scottish Power, who has just offloaded its struggling US subsidiary PacifiCorp to MidAmerican for $5.1bn in cash and $4.3bbn in assumed debt.Scottish Power will make a small profit out of the deal: it paid $8bn for PacifiCorp in 1998 a meagre return on a seven year investment, while things look even worse in sterling terms.
So how did it all go wrong? asks Robert Cyran on Breakingviews.com. The US acquisition all those years ago was based on two things: "power market deregulation" in the western US and a PacifiCorp turnaround. That did not, however, go according to plan, following Enron's fallout, which put deregulation on the "back burner". Moreover, bearing in mind that it takes "three connecting flights to get from Scotland to PacifiCorp's headquarters", it's not too surprising that the managers failed to run the business well.
So dumping its struggling acquisition can only be good news for Scottish: not only has the firm now promised to return $4.5bn to shareholders, but it may look increasingly attractive for a possible acquisition, says Cyran. The likely candidates? Possibly Scottish & Southern or Germany's E.on. Both candidates could be hard "to swing" given UK antitrust concern. Yet surely investors will prefer the prospects of bid speculation to the woes of a struggling subsidiary.