2005-09-08

Money & Intolerance: ScottishPower to Become German?

As Mr.Ian Russell gazed into the bathroom mirror of his Edinburgh home on 2005-09-05, Mo. morning, he could be forgiven for feeling a little stressed. The chief executive of 'ScottishPower' had spent the weekend fretting over plans to restructure the giant company. Not just any old restructuring either, but one that would lead to the sacking of two of his top executives -- Mr.David Nish and Mr.Charles 'Chuck' Berry. If that wasn't pressure enough, he also faced a growing threat from the silent powers of the stock market. 'ScottishPower's' shares had soared in value in the past three trading days, as rumours flew that its German rival 'E.ON' -- the owner of 'Powergen' -- wanted to buy the company. Wary of the threat, Mr.Russell knew he had to act quickly. As he set off on his daily commute to the company's HQ at Pacific Quay in Glasgow... he called a series of crunch meetings with his closest boardroom allies. The chairman, Mr.Charles Miller Smith, and the finance director, Mr.Simon Lowth, were duly summoned and agreed that the restructuring must be finalised as soon as possible. Mr.Nish and Mr.Berry were to be dismissed, alongside the human resources director, Mr.Mike Pittman, and the communications chief, Mr.Dominic Fry. More job cuts would be indicated across the group's 6_000-strong Scottish workforce -- the aim being to strip 60_million_GBP of costs from the company in 2006. Mr.Russell gave the same explanation to the four sacked directors as he was to give several times the following day, when his decision would be revealed to staff and the outside world. He would hark back to late 2005-05, when 'ScottishPower' announced the 5_100_million_GBP sale of 'PacifiCorp' -- its giant US American business -- to the world-famous entrepreneur Mr.Warren Buffet. The Portland-based utility had accounted for about two-thirds of 'ScottishPower's' valuation of 8_200_million_GBP, meaning the company would become much smaller when the deal went through. The idea of the restructuring was to slim down the group -- stripping out the four directors in the process -- preparing it for life as a smaller, independent, predominantly UK-based utility. He did not mention that the group's smaller size was what had attracted 'E.ON's' attention or that the downsizing was threatening the independence of one of Scotland's biggest companies. To this day, Mr.Russell has yet to publicly link the two events -- despite the asking of questions in parliament. Neither did he bring up the 9_million_GBP in shares, pension payments and other incentives he could make from a deal. Most aghast at his dismissal was Mr.Nish, the group's head of infrastructure. His title may sound rather dull, but most followers of 'ScottishPower' had pencilled him in as the most likely successor to Mr.Russell. Until 2004-12, he had been the finance director and Mr.Russell's right-hand man. It was thought his new appointment was to allow him wider experience before the big promotion, and he was present when the sale of 'PacifiCorp' was unveiled to the market in London. When asked if there was any acrimony surrounding his departure, Mr.Nish said:
'No comment.'
Mr.Russell added:
'This is not what I wanted -- they are good friends and colleagues.'
Yet, he insisted that, with the jettisoning of 'PacifiCorp', he no longer needed a middle man between the hands-on operators and himself. The rest heard the same story. While Messrs Nish, Berry, Pittman and Fry trudged off to the car park, Mr.Russell was immediately called into action once again. At 17:58 on Monday, 'E.ON' supplied City traders with what they had been expecting since the day 'PacifiCorp' was sold.
'E.ON confirms that it is considering its options regarding a possible takeover of ScottishPower,'
--it said. The statement complied with strict market rules -- that if shares in a company rise substantially on the back of takeover speculation, the company in question has to confirm or deny the rumours. The cat was out of the bag, and Mr.Russell had already put up his first line of defence. On 2005-09-06, Tu. morning, the details of the restructuring were released to the market and to regular employees. First, Mr.Russell summoned his 150-strong 'senior management team' to hear the news, then told the entire UK workforce via a recorded phone message. Staff were stunned; they had not seen it coming. Away from the corporate HQ, the news spread like wildfire through the company's engine-room at Spean St in Cathcart, where 2_000 staff are based. That was where Mr.Berry was based, and many worked under his control.
'We couldn't believe it,' said one staffer.
'Berry is a good guy and was so approachable. He worked out in the company gym, ate in the canteen and always had a bit of chat for everyone. Nish was a bit of a wet fish in comparison, but we all thought he was doing quite a good job.'
It is believed the job cuts will come in the back-office areas and in overstaffed support functions -- anything related to the running of 'PacifiCorp'. Insiders are keen to point out that it will not affect frontline staff and the call-centre functions. Few at the company could quite understand how 'ScottishPower' had gone from Scotland's third biggest listed firm to one fearing for its independence and willing to sack half its board at the same time. The answers to this question are to be found in the company's not-so-distant past, at the time of the acquisition of 'PacifiCorp' in 1999. Mr.Russell was not the chief executive at the time but, as finance director, he played a huge part in the move. It transformed the firm from a UK-based player to a behemoth straddling the Atlantic, and the group paid 10_000_million_USD for the privilege. But the adventure proved disastrous. Following nearly six years of calamities and unmet expectations, Mr.Russell sold out at 9_400_million_USD. The total loss worked out over the years at about 442_million_GBP. It left the smaller group vulnerable to a takeover from rivals at home and overseas, and facing an uncertain future. Mr.Russell has so far insisted that selling 'PacifiCorp' was the best result for the company's shareholders, as the proceeds would be repackaged as a dividend. He claims not to have put any thought into whether 'ScottishPower' would become a takeover target after the deal, although others saw it coming. Mr.Russell is right about one thing -- the sale of 'PacifiCorp' has been good for shareholders; but not because of the dividend. Some number-crunchers are predicting that to buy out the shareholders any group would have to pay 600p a share -- 11_200_million_GBP -- compared with the 442p the company was worth before the sale of 'PacifiCorp'. That's a big return -- but at the expense of corporate Scotland. Meanwhile, investors in Perth-based 'Scottish & Southern Energy' have done much better, even though Mr.Russell's 1.4_million_GBP/year salary is nearly twice that of 'SSE's' Mr.Ian Marchant. However, 'ScottishPower' staff say they, too, have share options waiting to be cashed -- and the soaring price could help soften the blow of redundancy. The future is not bright for 'ScottishPower'. The only positive outcome would be a successful counter-bid from 'SSE', keeping ownership in this country. But that would be blocked for competition reasons. That leaves 'E.ON' as the clear favourite for the prize, and it has pots of money with which to achieve its goal. The most likely outcome is that 'ScottishPower' will soon be a German company. Mr.Mcconnell offers full support to under-fire company chief The First Minister, Mr.JackMcconnell, yesterday held a private meeting with the head of 'ScottishPower' as he came under pressure to ensure that Scotland's third biggest listed company does not fall into foreign ownership. 'The Scottish National Party' turned the possible takeover into a major political issue at First Minister's Questions and sought an assurance from The First Minister that he would fight any takeover. Its continued existence as an independent business is in doubt after 'E.ON', a German utility company which owns 'Powergen', confirmed it was considering a takeover bid. The issue is complicated by 'ScottishPower's' large presence in the Glasgow Cathcart constituency, which is facing a by-election in three weeks. Talks were held between The First Minister and The Chief Executive of 'ScottishPower', Mr.Ian Russell, as fears grew for the company's future. It is not known whether Mr.Russell asked for The First Minister's help in trying to fight off a foreign takeover or whether The First Minister offered help. A spokesman for The First Minister refused to go into details about the talks, stating only that the two men had agreed to keep in touch as the matter developed. The First Minister is in a difficult position. He would like it to remain a Scottish firm with its HQ in Glasgow, but European rules prevent interference by governments in companies' commercial decisions. The First Minister can offer his verbal support but, at least at this stage, very little else. 'The SNP' tried to exploit this yesterday when Ms.Nicola Sturgeon, its Holyrood leader, tried to secure a commitment from The First Minister that he would fight any foreign takeover of 'ScottishPower'. Ms.Sturgeon's decision to seize on the possible takeover signals 'The SNP's' intention to use the uncertainty over the company's future in the by-election campaign. She suggested any takeover bid for 'ScottishPower' should be resisted as 'strongly and vocally' as was an attempted takeover of 'The Royal Bank of Scotland' in the 1990s. The First Minister said:
'I would certainly hope that they will remain not just headquartered here in Scotland but very much in control of their own affairs here in Scotland.'
Rise and fall of a Giant 'ScottishPower's' journey towards its current predicament started in 1999, when it agreed to buy US American firm 'PacifiCorp' for 10_000_million_USD (5_400_million_GBP). The acquisition of the utility, based in Portland, Oregon, was supposed to turn the Glasgow firm into a global force. But the deal was the start of the company's troubles. Mr.Ian Russell took over as chief executive in 2001-04, and embarked on a disastrous 12 months. The firm was forced to report losses of nearly 1_000_million_GBP exactly a year later, thanks to the effects of a power crisis in California and a write-off relating to the sale of its 'Southern Water' division in the UK. The company then recovered somewhat, but problems at 'PacifiCorp' re-emerged at the end of last year. After pledging to report profits at the US American division of 1_000_million_USD for the year ending 2005-03, Mr.Russell was forced to admit 2004-11 that the target would not be met. The company blamed poor weather for this, but six months later Mr.Russell made the surprise announcement that 'PacifiCorp' had been sold for 9_400_million_USD to venture capitalist Mr.Warren Buffet. The loss over the years worked out at 442_million_USD, while the deal with Mr.Buffet is still subject to regulatory scrutiny. Takeover rumours grew and 'E.ON' admitted on 2005-09-05 that it was considering an approach, while, a day later, Mr.Russell dismissed four top directors. 'The battle begins to keep ScottishPower in Scotland', JOHN BOWKER AND SHARON WARD, The Scotsman, 2005-09-08 Th

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