The merger of PacifiCorp into ScottishPower announced Monday would not be a big bonanza for Utah holders of PacifiCorp stock, many of whom have owned the shares in their family for decades, going back way before the Oregon utility acquired Utah Power & Light Co. in 1989.
"For a merger of this size, the premium isn't really that much," said Sterling Jenson, president and CEO of First Security Investment Management Inc.He said that right now it looks like a 23.7 percent premium over PacifiCorp's closing price Friday of $20.75. At 11:30 a.m. on Wall Street Monday the stock was trading at $21.25, up 50 cents.
Because of all the regulatory agencies on three continents -- North America, Europe and Australia -- that will want to investigate the merger for anti-trust implications, Jenson estimates it will take at least a year for the deal to be approved.
Ironically, last October PacifiCorp chairman and CEO Keith McKennon said that after years of fighting to become a major force in the international energy marketplace, the company had decided to focus on its electricity business in the western United States and sell most of its other U.S. and international holdings.
"We've spent a lot of time and money trying to 'transform' ourselves into a global energy company without success," said McKennon. "I don't think we need to be transformed."
It's difficult to imagine the depth of the "transformation" that will take place if the Scottish merger goes through, the first of its size in which a U.S. utility has been taken over by a foreign corporation.
Utah Power spokesman David Eskelsen said talks with ScottishPower started after PacifiCorp's failed attempt to purchase Britain's The Energy Group.
But he said PacifiCorp's recent announcement that it would sell some of its investments to concentrate on its core business of delivering power in six Western states was not made specifically to make the company a more attractive target for possible buyers.
Eskelsen said he is confident the Federal Trade Commission will approve the deal and that it will be able to close later in 1999.
"It represents a good strategic fit," Eskelsen said. "It's beneficial to shareholders and beneficial to customers."
Utahns currently own about 25 percent of PacifiCorp's shares, according to Roger Ball, administrative secretary of the Utah Committee of Consumer Services. They will own only some 9 percent of the shares in the new company.
Floyd Howell, a stock broker in the Salt Lake office of Piper Jaffray has been following Utah Power and PacifiCorp for many years and expressed reservations Monday over the takeover.
"I don't like it," said Howell. "I want the control of the company to stay in the United States. I don't care for it going someplace else."
Howell believes PacifiCorp to be "one of the better utilities in the country" and expressed the opinion that the company pays a good dividend.
He said he owns PacifiCorp in several portfolios but doesn't think he will sell the shares anytime soon because of the merger.
"I have some pretty good profits in it, and if I sell I just get into a tax situation."
But First Security's Jenson believes the merger would actually boost the dividend for owners of the new ScottishPower shares. The current PacifiCorp dividend is $1.08 and has been growing at a rate of 3 percent to 4 percent annually.
ScottishPower's dividend is currently $1.16 and has been growing at 7 percent to 8 percent a year. ScottishPower's stock trades on the New York Stock Exchange under the ticker symbol SPI.
As noted, Jenson doesn't believe the merger would be a big moneymaker for PacifiCorp shareholders, especially since it will take a year to complete. "So even if it doesn't go through, there won't be much risk," he said.
Under terms of the agreement, each PacifiCorp share will be exchanged tax-free for 0.58 American depositary receipts (ADRs) or 2.32 common shares of ScottishPower. Before allowance for any buyback, this will give ScottishPower shareholders about 64 percent and current PacifiCorp shareholders about 36 percent ownership in the combined company, which will be known as ScottishPower.
Based on a share price of 650 British pence, the reference share price that was used in the merger negotiations, the merger terms imply a price per PacifiCorp share of $25.12 1/2 cents and a total value of $7.9 billion for PacifiCorp's equity.
In a statement, ScottishPower chief executive Ian Robinson, said he believes the merger "will create significant value for shareholders by transferring its proven skills in improving customer service and reducing costs to PacifiCorp's businesses."
ScottishPower's senior management in the combined company would remain in place, a spokesman said. Murray Stuart would continue as chairman, Robinson would be CEO and Ian Russell would be deputy CEO.
Alan Richardson, currently managing director of Power Systems at ScottishPower, would become the new CEO of PacifiCorp. Richard O'Brien would become president and continue as chief operating officer at PacifiCorp.
ScottishPower said it will launch a share buyback program of up to $835 million following approval of shareholders of both companies but before the deal is closed. PacifiCorp's previously announced share repurchase program will be canceled.