SCOTTISHPOWER and Iberdrola, its Spanish suitor, are putting the finishing touches to a takeover bid today which will offer shareholders in the Scottish company a combination of cash and Iberdrola stock worth £12bn.
Philip Bowman, ScottishPower's chief executive, and Ignacio Sanchez Galan, Iberdrola's chairman, are under-stood to have met yesterday and agreed terms for the deal, which will be announced around the middle of this week.
ScottishPower's board wo
uld have preferred to take cash rather than Iberdrola shares, but the high premium on offer is understood to have convinced the company to accept a mixture of cash and paper worth 800p a share. That is 20% higher than ScottishPower's share price when Iberdrola's interest was made public.
The agreement means Scotland's fourth largest company by market capitalisation is almost certain to leave the London Stock Exchange this year.
Iderdrola, which is based in Bilbao, is believed to be particularly keen to get ScottishPower's wind farm operations in the UK and the US.
Analysts believe Iberdrola could sell ScottishPower's UK retail business, which includes power supply to customers in southern Scotland, Merseyside and north Wales, to a private equity firm or infrastructure fund following its takeover.
Speculation from some sources suggested Iberdrola would mount its bid with a bank or venture capital partner. But the Spanish company is understood to be bidding alone. Any break-up of ScottishPower will take place after Iberdrola has full control, industry sources say.
Lehman Brothers, the merchant bank, last week upgraded its target price for ScottishPower from 570p to 800p a share on the expectation that a deal would be done. John Musk, a Lehman Brothers analyst, said: "We would not rule out ScottishPower partnering with an infrastructure fund who would take ownership of the regulated UK assets. We only have to look at examples in the UK water sector to see that there is plenty of interest from infrastructure and pension funds in regulated UK assets."
The two companies have been talking informally for months. Serious takeover talk started after Bowman and Galan met in London three weeks ago.
Talks were given added urgency on Tuesday, when ScottishPower issued a stronger than expected set of results for the six months to September, including a 77% rise in profits before tax and exceptionals to £483m.
A full offer this week could flush out any rival bidders, although a convincing candidate has yet to emerge.
RWE, the Germany utility group, has been tipped, but Spanish tax laws mean companies based there can offer to pay substantially more for acquisitions.
Buying ScottishPower would strengthen Galan's hand in dealing with his biggest shareholder, ACS, the construction company controlled by former Real Madrid chairman Florentino Perez.
Market watchers believe it would also give him a stepping stone to create a top-ranking European utility group.
Shares in ScottishPower closed at 755p on Friday, up from 671.5p when it announced it was in takeover talks and from 570p when it rejected a bid from E.ON of Germany last year.
