June 18, 2002 — American Electric Power (AEP) signed an agreement Tuesday to sell SEEBOARD, AEP’s retail electricity and gas supply and electricity distribution subsidiary in southeast England, to London Electricity Group plc (LE Group), one of the largest energy companies in the United Kingdom.
“This divestiture advances our strategy: a balanced portfolio that includes wholesale energy businesses and assets – both in the United States and select international markets – and our strong utility business in the U.S.,” said E. Linn Draper Jr., AEP’s chairman, president and chief executive officer. “The risks inherent to the competitive retail energy business are best undertaken by consolidators like London Electricity Group. Our strengths are in wholesale energy markets.
“The sale of the retail supply business and UK regulated assets strengthens our balance sheet and positions us to grow our asset-based wholesale energy business in North America, the UK and Europe,” Draper said. “We remain committed to the region. We will continue to build our London-based European wholesale energy business and operate the 4,000 megawatts of generation we own in northern England.”
The SEEBOARD transaction is valued at approximately UK£1.39 billion (approximately US$2.03 billion). Under terms of the agreement with LE Group, AEP will receive UK£670 million (approximately US$975 million) in cash for SEEBOARD, and LE Group will assume SEEBOARD debt of approximately UK£722 million (approximately US$1.05 billion). In addition, LE Group will assume obligations valued at UK£100 million (approximately US$146 million) related to a power purchase agreement with Medway Power.
AEP will use the proceeds of the sale to reduce debt by approximately US$943 million.
AEP will recognize a loss on the sale of approximately US$440 million in the second quarter, a portion of which may be recognized as an impairment of goodwill under a recent change in accounting rules. Included is a foreign exchange loss of approximately US$80 million previously reflected in AEP shareholders’ equity. The divestment of SEEBOARD will not have an impact on the company’s 2002 ongoing earnings guidance of $3.60 to $3.75 per share.
The sale – which includes SEEBOARD’s electricity distribution and supply business assets, its contracting business, and its 37.5 percent interest in Medway Power Ltd. – is conditional only on the European Commission approving the transaction under its merger regulations. The completion of the sale is expected to take four to six weeks.
SEEBOARD, headquartered in Crawley, West Sussex, sells electricity and gas to about 1.9 million customers in the UK. The majority of these customers are in Kent, Sussex and parts of Surrey. AEP gained ownership of SEEBOARD on June 15, 2000, with the completion of AEP’s merger with Central and South West Corp., which had acquired SEEBOARD in January 1996 for approximately US$2.1 billion, including the assumption of SEEBOARD debt.
LE Group is responsible for the electricity distribution networks in London and Eastern England and supplies energy to nearly 3 million customers. LE Group is owned by Electricite de France (EDF).
Schroder Salomon Smith Barney and ABN AMRO advised AEP on the sale of SEEBOARD.
AEP announced in February that it had appointed investment banks to advise AEP on prospects for an analysis and possible divestment of SEEBOARD and Citipower, an electricity distribution and retail sales subsidiary in Melbourne, Australia. AEP and its advisor, ABN AMRO, continue to evaluate Citipower and its potential sale.
American Electric Power is a multinational energy company with a balanced portfolio of energy assets. AEP, the United States’ largest electricity generator, owns and operates more than 42,000 megawatts of generating capacity in the U.S. and select international markets. AEP is a leading wholesale energy marketer, ranking among North America’s top providers of wholesale power and natural gas with a growing wholesale presence in European markets. In addition to electricity generation, AEP owns and operates natural gas pipeline systems, natural gas storage, coal mines, and the fourth-largest inland barge company in the U.S. AEP is also one of the largest electric utilities in the United States, with almost 5 million customers linked to AEP’s wires. The company is based in Columbus, Ohio.