Dominion to purchase British electricity distributor $2.6 billion deal would be 4th by a U.S. firm since '94


RICHMOND, Va. -- Dominion Resources Inc. agreed yesterday to pay $2.6 billion (1.6 billion pounds) in stock and assumed debt for East Midlands Electricity PLC, Britain's third-largest electricity distributor.

If regulators approve, the purchase will advance the Richmond, Va.-based utility's strategy of foreign expansion and will be the fourth purchase of a British electric utility by a U.S. company in the last two years.

"They're building a global franchise, and this was a really good addition," said Edward Tirello, an analyst with NatWest Securities.

Though East Midlands' board accepted the $11-a-share offer, analysts cautioned regulators could stall or block the transaction. British regulators may balk at yet another utility purchase by a U.S. company, and the Virginia State Corporation Commission has said it would closely review any bid.

Big U.S. utilities such as Dominion are expanding where electricity usage is expected to grow more rapidly than in the United States, or where, as in Britain, regulators make it possible to earn higher returns. Dominion, which supplies electricity to almost 2 million customers in the South, also has power projects throughout Latin America, including Argentina and Chile, and in Australia. Its investments outside the United States are valued at $2 billion.

The utility also may be seeking experience in operating in a deregulated market because its own market is likely to be opened to competition over the next few years as the United States embraces deregulation.

Nottingham-based East Midlands is one of 12 British regional electricity companies sold to the public in 1990. It supplies electricity to about 2.2 million homes in central England. British electric companies are divided into generators, which own power plants, and distributors, which run transmission networks.

The Monopolies and Mergers Commission, Britain's antitrust regulator, can delay an offer for several months or kill it. Though the commission hasn't blocked any electric company acquisitions by U.S. companies, analysts say its members now may be concerned about the diminished number of independent electricity companies in Britain, in part because the commission prefers that such companies have their own stock listings. A listing brings analyst coverage that is useful for British regulators.

A larger concern may be the May elections in Britain. "It depends whether the government fears the wrath of the Labor Party more than that of American business," said David Campbell, an analyst at Greig Middleton & Co.

East Midlands' shares rose 11.5 pence to 622.5 pence, well short lTC the offer price, as investors showed concern that regulators might not approve the buyout.

"The market is taking a very cautious view on regulatory clearance," Campbell said. If regulators decide to review the bid for its anti-competitive potential, it automatically lapses. Dominion rose 62.5 cents to $40.375 in trading of 483,100 shares.

Pub Date: 11/14/96

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