Profile - E.ON

Based: Dusseldorf Formed: June 2000, from former state utilities Veba and Viag Stock market value: 36.6bn euros (�22.7bn) Employees: 180,000 Sales: 93.2bn euros (+34%) Pre-tax profits: 6.80bn euros (+35%) Also owns world's largest specialty chemicals firm, Degussa

By 1998, eight of the UK's 14 regional electricity distribution firms were in US hands.

Texas-based Enron also owned Wessex Water, while the French Lyonnaise des Eaux bought Northumbrian Water.

Now, after a brief closed season, it seems UK utilities have again become fair game for foreign utilities on the takeover trail.

This time, however, the predators come not from across the Atlantic, but from the other side of the Channel.

Bucking the trend

In September, German industrial giant RWE bid �4.3bn for Thames Water, the world's third largest water firm outside state ownership.

Now Dusseldorf-based rival E.ON has offered �5.1bn for Coventry-based electricity giant Powergen.

Electricite de France, meanwhile, is said to be poised to announce it has bought the major electricity distributor for the south east of England.

The timing of such deals stands in stark contrast to the slowdown in merger activity in other sectors.

A report released last week showed global merger and acquisition activity down more than half in the first three months of this year, compared with the same quarter in 2000.

US withdrawal

The spate of activity also comes as US firms are reducing holdings in the UK market.

Profile - Powergen

Based: Coventry Formed: 1989, from state-owned Central Electricity Generating Board Stock market value: �4.6bn Sales: �4.19bn(+12%) Pre-tax profit: �517m (-9.1%) Owns East Midlands Electricity and, in US, LG&E

Seeboard, the electricity firm EdF is said to be bidding for, is owned by Ohio-based American Electric Power.

And American Electric Power is further reducing its UK exposure through the sale of Yorkshire Electricity, which it partly owns.

Marc Watton, utilities analyst at BNP Paribas, puts the reverse down in part to poor planning.

"In 1990s US firms poured into the UK - it looked like a one-way bet," he told BBC News Online. "Then in 1997, the Labour government imposed its [�5.2bn] windfall tax," with tough regulatory reviews following in the pipeline.

"All these things were not entirely unpredictable, but I am not sure the US buyers had done their homework properly. Then they lost confidence in the UK market.

Struggle for profitability

The difficulties of achieving profitability in what have become, in some areas, highly competitive energy markets has also discouraged US investors, Mr Watton said.

Indeed, a glance even at Powergen's figures, which show a 9.1% decline in pre-tax profits, reveals that UK utilities have not completely shrugged off their traditional sluggishness.

The more broadly based E.ON, meanwhile, saw pre-tax profits rise by more than one third to 6.80bn euros.

So why is E.ON so enthusiastic to strike a deal which will see it pay top sterling for a loss-making UK utility, and prompt a disposal of subsidiaries which include the world's largest specialty chemicals group?

'Double hit'

The reason is to achieve, in the words of E.ON chairman and chief executive Ulrich Hartmann, a "double hit", both, in essence, geographic.

Ulrich Hartmann: poised for a "double hit"

Since its formation last year, in a sector mega-merger, E.ON has pursued a strategy of "focus and growth", the focus being on the energy sector, the growth gained not just from German operations, but markets Europe-wide.

The firm's high-voltage grid currently stretches from Germany to the Alps. But, in Monopoly terms, it has lacked cards notably for any UK, French and Spanish utilities.

"The acquisition of Powergen will move E.ON to a top global position as an integrated energy service provider," Mr Hartmann said.

"We will be the world's second largest energy service provider," boasting 30 million customers.

US focus

The second hit is to gain a position in the US market. The prize in Powergen's portfolio is not so much the East Midlands Electricity distribution business, nor even the firm's seven power stations, globally-admired models of efficiency though they are.

What E.ON gains through Powergen is ownership of Kentucky-based energy company LG&E Energy, and an entr�e to a US market reckoned to be ripe for deregulation, and thus rich in opportunity.

"The US market is eight times larger than the German market... the potential returns and growth rates are much higher," Mr Hartmann said.

Ownership of LG&E will put E.ON in "pole position" for expansion into the "particularly attractive" Midwest of the US - an area whose electricity consumption equals that of Germany and France added together.

"Our goal is to achieve a leading position in the US," Mr Hartmann continued. "We will seek further attractive acquisitions to move into the top group of US utilities."

Acquisition trail

The deal will also give Powergen, which spent $3.2bn of valuable reserves buying LG&E last year, the backing to embark on a new buying spree.

Ed Wallis: ambitions blunted by cash shortage

"In both our UK and US businesses, our future strategy is based on achieving further growth," Powergen chairman Ed Wallis said on Monday.

"However, having made two recent cash acquisitions, we can't achieve this as quickly as we'd like on our own."

In Mr Watton's words: "Because of the expense it absorbed in taking over LG&E, Powergen has been sitting on its hands for a bit. This deal gives it the means to expand in the UK."

Battles ahead

In such domestic takeovers, Powergen is likely to face little competition from the US firms which proved so keen to buy UK utilities a few years ago.

However, this lack of enthusiasm by US firms should not be interpreted as a sign of retreat, but as a tactical withdrawal, Mr Watton said.

"US firms are looking to repair their balance sheets, or to concentrate on areas where there are better growth opportunities. These may well be in the US itself."

Utilities on both sides of the Atlantic have realised the potential returns of the US market.

The prospect looms of another struggle for power between European and US utilities.

This time, however, the fight will be on US soil, and here the value Powergen lies not just in its existing American interests, but in its potential for acquiring more.

Mr Wallis and Co have a proven history of success in the US takeovers, and gained experience which will prove invaluable in the battles ahead.

In Monopoly terms, they can distinguish not only their Pall Malls from their Pentonville Roads, but find their way around the Parks Places and North Carolina Avenues of the US edition too.