While we were in jail in Washington during the war in Vietnam, my comrades and I spent part of our night as guests of the state singing several choruses of the song, ‘Waist Deep in the Big Muddy’.
I would not compare Scottish Power chairman Ian Robinson to President Lyndon Johnson. And Robinson’s invasion of the US power industry through his plan to purchase PacifiCorp of Oregon is not exactly the landing at Da Nang. But there is a little bit of LBJ’s resolute optimism, while marching deeper into the quicksand, which has me humming that old song.
This week, the state of Oregon’s Public Utility Commission issued their experts’ report on Scottish Power’s £4.7 billion proposal to take over electricity company PacifiCorp. Their verdict: thumbs down. The state’s Citizens Utility Board, an official participant in the government approval process, also dissed the plan. Other parties to the review filed recommendations which ran the spectrum from ‘Nyet’ to ‘Not a chance’.
The deal may look dead, but the corpse won’t lie down. Scottish Power issued a press release stating that the filings ‘affirmed that the merger of the two companies is on track’.
Scottish Power shareholders may applaud their company’s won’t-turn-back chutzpah – until they read the reasons why the state would reject the merger. Regulators and consumers are jittery about the extravagant premium Scottish Power insists on paying PacifiCorp shareholders, $1.6bn (£1bn) above book value. The state government’s economist wrote: ‘I have not been able to uncover a coherent plan’ for Scottish Power to recover this excess payment.
Despite repeated requests from regulators, Scottish Power refuses to reveal how the gold-plated offer price would do anything other than hobble the electricity company with debt or poor earnings. On paper, the buyout appears a sure loser for the Scottish company, so much so that Oregon consumers suspect this mad generosity must conceal some scheme to strip assets or cash from the US operation.
How did Scottish Power get itself into this nasty ground war? The Glasgow firm was lured into the American quagmire because Robinson and company misunderstand the ways of the New World Order. They march under the banner of globalising ownership, free markets and free capital flows – concepts sold to them by their American consultants and investment bankers.
However, as the Scottish group is learning at great cost, uncontrolled free enterprise is not applicable within the US Imperium’s own borders.
Only months ago, Oregon permitted the very same PacifiCorp to bid for the UK’s largest electricity company, Eastern Group (which was ultimately won by Texas Utilities of Dallas). But when the tables are turned it’s a different story. The Oregon commission dismisses globalisation out of hand when applied locally. The commission’s economist warned against a merger that ‘would absorb PacifiCorp into a corporation with global expansion aspirations’.
The regulators fear that the Oregon company would become a neglected unit of a foreign operator, much as seven of England’s 11 electricity distributors became the abused stepchildren of US multinationals.
With few exceptions, US owners have invested nothing in their UK subsidiaries, but have carted off several billion pounds in earnings.
Is there hypocrisy in the US position? ‘That’s not our concern,’ says a commission insider. Their concern is to prevent Scottish Power from doing the same to US customers.
Scottish Power executives proudly told Oregon regulators of the huge cost savings they squeezed out of Manweb after taking over the Midlands utility. The Americans were horrified, not at the cost savings, but at the fact that Scottish Power kept the entire gain for its shareholders, racking up profits of between 20 and 30 per cent on capital.
Can Scottish Power earn equivalent returns from its US customer base? ‘Not if we’re doing our job,’ a government official told me. ‘Savings must go to customers.’
US regulators keep a tight lid on profits. Oregon rules would be likely to lead to a mere 6 per cent return on Scottish Power’s investment, with no provision for recovery of the billion-pound premium. As if that wasn’t enough, the Oregon regulators are backing customer demands for guaranteed price cuts to balance the windfall Scottish Power is conferring on PacifiCorp shareholders. The price tag could total hundreds of millions of dollars. In addition, the state government has demanded that the Scottish company turn over minutes of the meetings of its board of directors and submit managerial decisions made in Glasgow to the US panel.
This is not the kind of free enterprise the Britons expected from Americans. Scottish Power compounded its error by believing it would find succour among fellow capitalists.
Glaswegian Alan Richardson, the man who would be chairman of the US subsidiary, annoyed a group of Oregon’s industrial customers by telling them he planned to ‘fully exploit PacifiCorp assets’. Assembled executives recognised that they (or at least their corporations’ accounts) were the assets in question. American industrialists do not take kindly to being placed at the receiving end of exploitation. The industrial customers’ consortium has now put its substantial legal and political resources behind stopping the merger.
So why did Scottish Power offer such a wildly high price for the Oregon company? Ken Canon, spokesman for the industrial customers’ group, says ‘big businesses can make big mistakes’. By now, that must be evident to chairman Robinson and company.
And this suggests a possible explanation for Scottish Power’s unceasingly clumsy defence of its proposals. If Scottish Power dumped the deal, it would have to pay a $250m penalty to PacifiCorp, and Robinson would suffer the ignominy of retreat from his grandiose programme. But by goading regulators into rejecting the merger, he avoids the penalty payment and withdraws with his corporate honour intact. In which case, he’s nobody’s fool after all.
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Gregory Palast’s column “Inside Corporate America” appears fortnightly in the
Observer’s Business section. Nominated Business Writer of the Year (UK Press
Association – 2000), Investigative Story of the Year (Industrial. Society – 1999), Financial Times David Thomas Prize (1998).