It's tough for a management team to acknowledge that a plan went awry and a business move turned out to be a mistake. Credit ScottishPower (NYSE: SPI), then, for not only acknowledging that the company's involvement in PacifiCorp has not generated the expected returns, but also taking necessary steps to dispose of the business.
On Tuesday morning, Scottish Power announced its agreement to sell PacifiCorp to BerkshireHathaway's (NYSE: BRKA) MidAmerican business for $9.4 billion, a figure that includes the assumption of $4.3 billion in debt. While PacifiCorp isn't in any real trouble, energy-market liberalization hasn't come through in the United States the way Scottish Power executives expected, and they felt that getting sufficient returns from the utility would require significant additional capital investments.
From those net proceeds, Scottish Power expects to return about $4.5 billion to its shareholders. While management was not specific about their strategy, I'd speculate that a major share repurchase or a special dividend would both be popular options.
In addition to jettisoning the PacifiCorp albatross, Scottish Power announced decent earnings for the fiscal fourth quarter (ended in March). Turnover (that's Brit-speak for revenue) climbed 11%, and profit excluding goodwill climbed more than 8%.
Scottish Power also saw good results for the year as a whole. Operating profits before goodwill climbed about 4%, but when PacifiCorp is removed from both '04 and '05 results, the growth shoots up to over 23%. The company's UK division (power generation and supply) grew nearly 79%, while the American-based PPM business (which focuses largely on wind power and gas storage) grew nearly 60%. The company's infrastructure business (transmission and delivery) was more laggardly but still grew nearly 6%.
Although free-cash-flow performance for the full year was weak, I still believe that Scottish Power is worth a look for investors interested in foreign utility companies. The company has a reasonably clean balance sheet, a good return on equity, and a solid payout.
Better still, investors in Scottish Power not only get a good, and growing, electrical utility company, but a profitable and liquid trading play on wind power as well. (Liquidity is the key when compared to wind power pure-play Vestas (OTC BB: VWSYF).) Foreign companies aren't always easy to follow or analyze, but I'd argue that Scottish Power is worth the time and trouble for investors.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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