Dominion Resources Sells UK Subsidiary, East Midlands Electricity plc, to PowerGen plc

Strategic Insights -

In a surprising move, Dominion Resources, a Richmond-based electric power monopoly, has announced that it will sell its UK subsidiary, East Midlands Electricity plc, to PowerGen plc, the UK's second-largest electricity generator. The sale, valued at $3.2 billion in cash and assumed debt, marks the end of Dominion's UK experiment, which was launched two years ago with the hopes of gaining insight into how to survive in a deregulated market. However, the company's chairman, Thomas E. Capps, attributed the decision to lower-than-expected returns on the UK investment.

Key Takeaways:

  • Dominion Resources will sell its UK subsidiary, East Midlands Electricity plc, to PowerGen plc for $3.2 billion in cash and assumed debt.
  • The sale marks the end of Dominion's UK experiment, which was launched two years ago with the hopes of gaining insight into how to survive in a deregulated market.
  • Dominion's chairman, Thomas E. Capps, attributed the decision to lower-than-expected returns on the UK investment.
  • The company sought to expand through mergers or other combinations to achieve economies of scale but was unsuccessful.
  • Dominion paid $2.2 billion cash in early 1997 and would have assumed $500 million in debt in acquiring East Midlands.
  • The sale agreement still needs to be approved by PowerGen shareholders and British regulatory authorities.
  • The deal includes a "windfall profits" tax imposed by the British government, which depressed Dominion's earnings.
  • First-quarter earnings were $.72 per share, compared to $.93 per share the previous year.

Statistics:

  • $3.2 billion: Value of the sale of East Midlands Electricity plc to PowerGen plc.
  • $2.2 billion: Amount of cash paid by Dominion Resources for East Midlands Electricity plc in early 1997.
  • $500 million: Amount of assumed debt in acquiring East Midlands Electricity plc.
  • $.72: Dominion's first-quarter earnings per share.
  • $.93: Dominion's earnings per share the previous year.
  • 70%: The premium compared to asset value that PowerGen paid for East Midlands Electricity plc.
  • 5 years: The timeframe within which utility companies are expected to be nimble and make surgical acquisitions and sales.

Sources:

  • "Dominion Resources to Sell UK Subsidiary" (unspecified source)
  • [Note: The original text does not include any specific sources, but the context suggests that it is a news article from the Richmond Times-Dispatch.]