MD writes...

In my last blog fired in anger, I wrote that the proposed sale of PacifiCorp was a bad deal for the seller, Scottish Power. Following a comment from one of our readers I felt the need to review my initial statements. Here are my observations (from last accounts plus spreadsheet attached below):

* PacifiCorp grew revenues by 8% YOY in $ terms in 2004/05. Not
shabby for a utility;

* Predicting growth in expanding markets;

* The commentary suggests that regulatory price increases have been generally favourable;

* PacifiCorp delivered 25% of group revenues in 2004/05 (despite being adversely affected by the $ weakness);

* Despite this PacifiCorp ROS is 24% vs the UK business' 15% (Op Inc pre goodwill);

* Post goodwill the situation deteriorates. But despite this goodwill effect (related to the original acquisition) the ROS is still consistently better than the UK business;

* PacifiCorp delivers 45% of group Op Income (pre goodwill) - slightly less than the UK business, in prior years it delivered significantly more;

* Thus the headline numbers suggest that this is a sound business - quick to turn very significantly should the £ weaken vs the $ and, failing a $ recovery, deliver sound performance.

So no downsides? Well, not quite. Much of the asset-base is very elderly. Recent investment has centred on wind/renewables, no bad thing in itself; future committed investment includes new gas-powered stations (NB there is also a, perhaps belated, recognition by the authorities that the lights must stay on). There is clearly a need for significantly increased investment to upgrade / replace old coal and HEP assets (although this is not required overnight, and will generate a return).

* Still a bad, value destroying deal, particularly as it results in a significant write off;
* The justifications for the deal are specious;

* The deal ignores the future upside;

* Sets the company up for a takeover;

*Always a concern when the company chairman is Charles Miller-Smith, the man who brought ICI to its knees through a botched acquisition and a ludicrous "progressive" dividend policy. Mr Miller-Smith shrinks rather than grows businesses.

Well-done guys.

Download the Scottish Power/PacifiCorp numbers to Spreadsheet

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