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Scottish Power: Price was too high

Earlier this month, about two dozen Florida Progress Corp. employees were holed up at the Moat House Hotel in Glasgow, Scotland, while they negotiated a takeover by Scottish Power PLC.

But it was not to be. The talks ended abruptly last week when officials from Scotland's largest electric company decided they just weren't comfortable with the price.

Florida Progress officials don't want to discuss the failed merger. But details about the deal in the Scottish and British media provide a clear picture of what would have been an unprecedented takeover in the U.S. electric industry.

While dealmakers from Florida Progress traveled to the Scottish Highlands, their counterparts from Scottish Power were kicking the tires in St. Petersburg. The Scottish team was led by two Ians _ Ian Robinson, the company's chief executive, and Ian Russell, the company's finance director _ according to the Scotsman, a newspaper in Edinburgh, Scotland.

For two weeks, the two pored over Florida Progress' books, doing "due diligence." But last Wednesday, the acquisition team found something in the financial data that set off alarms.

"They had been through the numbers again and again. There was no way they could justify the price they would need to pay if they were going to come away with a deal that both Scottish Power and Florida Progress could sell to their shareholders," reported the Scotsman.

Press reports in the United Kingdom valued the potential acquisition at about $4-billion. The price tag approximates Florida Progress' stock-market value last week.

The Scotsman called the potential acquisition "a deal made in heaven," a groundbreaking transaction that would have given a foreign electric company its first foothold in the United States, the world's biggest electricity market.

The takeover would have also reversed the "trans-Atlantic trend of the past two years in which U.S. groups have purchased eight out of 12 English and Welsh electricity supply companies," said the Financial Times of London.

To pay for the acquisition, Scottish Power would have issued new shares, in the form of American depositary receipts that trade on the New York Stock Exchange, and taken on additional debt, according to the Herald in Glasgow.

Other factors made the price tag unappealing to Scottish Power, according to press reports. Florida Progress was still dealing with legal problems involving its life-insurance subsidiary. Had the takeover gone ahead, U.S. regulators would have likely frowned on foreign ownership of the Crystal River nuclear plant owned by Florida Power. And Florida Progress' ownership share in the Tampa Bay Devil Rays "would not have been seen as an appropriate investment in the financial communities of Scotland and London," the Scotsman reported.

Scottish Power has been looking to make an acquisition in the United States for a couple of years, and that desire became more evident last fall when Scottish Power listed its shares on the New York Stock Exchange. If the company could have struck a deal, it would have trumped its English rival PowerGen PLC, which tried last year to pull off a merger with Cinergy Corp. in Cincinnati, the Scotsman said.

Scottish Power first evaluated Florida Progress at least three years ago, according to the Scotsman, before beginning discussions of a takeover in January.

A Florida Progress spokeswoman declined to confirm details other than to say that company officials did visit Scotland. "Neither side would do a transaction like this without doing due diligence," spokeswoman Melanie Forbrick said.

Despite having last-minute second thoughts about Florida Progress, Scottish Power is still interested in making an acquisition in the United States.

The negotiations also confirmed that Florida Progress is ready to deal. Still, the company's stock has not held on to last week's gains that were fueled by takeover rumors. After trading as high as $42 Friday, the stock settled at $39.93} Tuesday, up 25 cents. About 400,000 shares have traded in the past two days compared with more than 2.6-million Thursday and Friday.