Our story starts in 1991.

After 40 years of government ownership, the U.K. electricity industry
began to privatize in 1990. England and Wales were first, with the formation
of 12 regional electricity distribution companies, a transmission company,
and two new generating companies. The following year, it was Scotland’s
turn. That’s when the customers and employees of a government-run electricity
board became the customers and employees of a new, vertically-integrated
company called ScottishPower.

As recently privatized companies, we were all novices facing a new, complex
competitive environment. Many utility brethren entered with gusto – and
their tales of woe are well documented in U.K. utility folklore. ScottishPower’s
approach was more measured.

Figure 1
ScottishPower Regional Territory – 1991

Figure 1

Inventing the Wheel

It was apparent to ScottishPower management that the company must first
get its core business in order. Certain issues required urgent executive

  • No clear strategic direction existed.

  • Commercial market savvy was lacking at all management levels.

  • The company culture was focused internally rather than on the needs
    of customers.

Reshaping the core business required clear leadership, focused on improving
cost and customer service efficiency. That process began with improvement
programs driven primarily by benchmarking and business process re-engineering
(BPR). ScottishPower learned from its employees, from other utilities,
and from companies in other industries that enjoyed high levels of customer

ScottishPower learned from its customers that their attitudes and expectations
were changing and that we needed to recognize this to be competitive.

Also, underpinning the internal transformation was a complete overhaul
of the human resource strategy. Executives became directly involved in
developing management capabilities. Managers were groomed through the
use of personal development plans, MBA, and senior executive courses.
Formal succession planning was initiated. Task-specific training centers
were developed as were more broadly focused open learning facilities.

Best in Class

The payoff became apparent as competitive benchmarking was conducted
against other U.K. utilities for 1994-1995. ScottishPower was rapidly
becoming best in class.

Expanding Horizons

External commentators, such as regulators and industry analysts, confirmed
ScottishPower’s leading position. It was time to take a larger view of
the world. From ScottishPower’s beginnings as a newly privatized utility,
the strategic approach needed to create shareholder value was clear: maximize
performance in the core business by transforming it from a bureaucratic
entity to a competitive leader – and then grow by replicating that model.

Adopting a measured approach, it was decided that the first opportunities
to expand and diversify should be close to home in the U.K. As the company’s
abilities matured, international targets would follow.

ScottishPower made its first move in 1995. That’s when it became the
first U.K. electricity utility to buy another with a successful takeover
of Manweb. This was followed in 1996 by the acquisition of Southern Water
– marking the first purchase of a U.K. water utility by a U.K. electricity

Since being acquired, both Manweb’s and Southern Water’s operations have
improved dramatically. Each has significantly reduced costs while raising
performance and customer service levels. Both are now positioned among
the leaders in their sectors.

ScottishPower also benefited through the valuable experience it gained
as a result of the acquisitions of Manweb and Southern Water. Among the
lessons learned were:

  • The need for full executive commitment

  • The need to gain detailed knowledge of value drivers within a business

  • The importance of a clear focus on customer service

  • The necessity of thorough due diligence and careful valuation

  • How to set aggressive targets during transition

  • How to develop a comprehensive approach to implementation and its

  • The need to focus on management and people development

In addition to these two acquisitions, ScottishPower also grew organically.
The company built on its existing telecommunications infrastructure by
adding fiber optic access lines and strategically placed switches, combined
with a strategy to build traffic on the network. Small acquisitions brought
in additional business. By November 1999, ScottishPower’s telecommunications
business offered 49 percent of its stock in an initial public offering
worth $1.6 billion – a good return on a $0.5 billion total investment.

As well as being a leader in the deregulated electricity market, ScottishPower
expanded into the natural gas retail market. With 700,000 gas customers
by March 2000, the company was placed among the top three U.K. gas retailers.

Heading West

In 1998, ScottishPower initiated the next part of its strategic plan
– the move to international markets.

A small corporate team initially undertook a global search of countries
to identify environments that would support value-creating deals and offer
more than one possible acquisition target. With its apparent strategic
synergies with the U.K., the U.S. emerged as the favorite. Common language,
similar culture, fragmented industry, and markets on the verge of deregulation
combined to make it the top choice. Once this was decided, selection criteria
were established such as company size, presence of nuclear generation,
and the strength of the share price stock. Scrutiny of the top-10 ranked
companies followed, and PacifiCorp emerged as a leading candidate.

A multi-billion-dollar electric utility, PacifiCorp offered a wide service
area that stretched across six U.S. states, as well as a large, low-cost
asset base, and international experience of its own with its Australian
subsidiary, Powercor. ScottishPower’s acquisition of the Portland, Oregon-based
company would create benefits for all stakeholders. It would also mark
the first acquisition of a major U.S. electric utility by an overseas

The proposed acquisition was announced on December 7, 1998.

Figure 2
Competitive positioning among UK utilities in 1994-95.
larger image

Figure 2

The Art of the Deal

Executing an international acquisition is a complex process in any industry.
But ScottishPower’s acquisition of PacifiCorp was made even more so by
regulatory hurdles in six states and three countries. However, good corporate
finance, regulatory, legal, and communications advice, which had been
put in place at least nine months before the merger announcement, all
contributed to making the merger a success.

As soon as the deal was announced, the approval clock started ticking.
New to doing business in the U.S., state and federal approval processes
were completely alien. Due to the deal’s uniqueness, scale, and complexity,
the aggressive timelines would not have been possible without the full
support of PacifiCorp management. But even with PacifiCorp’s valuable
assistance during this process, it was useful to have independent advice
as well.

The original, ambitious timeline was to complete the deal within one
year – half the time most industry pundits deemed necessary. We made it.

The eventual milestones achieved were the following:

  • December 7, 1998 – Merger announced

  • Winter/Spring 1998-99 – State and federal filings and testimony

  • May 6, 2000 – U.K. and U.S. shareholder documentation published

  • June 1999 – U.K. and U.S. shareholder votes

  • Summer 1999 – State regulatory hearings

  • November 30, 1999 – Merger approved

Figure 3
ScottishPower’s strategy to expand and diversify


Figure 3

How We Got There

A ScottishPower/PacifiCorp Joint Executive Committee met monthly to oversee
business operations and the regulatory approval process. It was balanced
in numbers between ScottishPower and PacifiCorp. A series of teams were
created to handle the day-to-day work of completing the merger.

A Transaction Team dedicated to corporate finance, investor relations,
and advisory services was established in the U.K. The team’s primary responsibility
was ensuring the deal could be concluded satisfactorily from a financial
and legal perspective.

A Portland-based Regulation Team of 20 people was created to drive the
robust project management needed to execute the regulatory approval process
on such aggressive timelines.

Fulfilling the requirements of state-level procedure proved a significant
task in itself. Though previous research made team members aware of the
process, only experience could really teach us just how much work was
really involved.

The process is handled much like a court case, except that all testimony
is presented in writing. After testimony is filed, intervenors such as
major customers, community groups, or state utility commission staff cross-examine
by submitting written questions in a process known as “discovery.”

In the merger case, more than 2,000 discovery questions were submitted
– each of which needed to be answered within 10 days of when it was filed.
The sheer workload required a dedicated team to manage the process. Questions
ranged from simple information inquiries to requests requiring very detailed

A network of experts had to be established in the U.K. and U.S. to ensure
consistency and quality of responses. This team, in turn, was backed by
a team of customer service, community and environmental experts charged
with communicating ScottishPower’s policies and achievements to key influencers,
community, and pressure groups.


Figure 4

The evolution of ScottishPower Group – 1997

Figure 4


For any acquisition to succeed, a robust communication plan is needed.
This requirement only escalates when dollar amounts increase and oceans
separate the parties involved.

Face-to-face contact is everything in terms of winning stakeholder approval.
Within the first four months, I personally met with several thousand PacifiCorp
staff, local and national press, more than half a dozen U.S. congressmen,
five governors, more than 100 state legislators, 48 mayors, 50 elected
officials, and 12 state regulatory commissioners. Other ScottishPower
and PacifiCorp team members conducted similar meetings as well.

Local customers, especially in certain rural areas, required face to
face comforting. Public meetings in the U.K. involving utilities are rare
and sparsely attended. Yet in some U.S. communities, such meetings brought
standing-room-only crowds. ScottishPower executives won respect and quelled
fears at these meetings by sharing the customer service successes of our
previous acquisitions.

Since any issue, however small, has the potential to derail a deal in
such an environment, we made a concerted effort to use people on the ground
in local communities to quickly and proactively deal with issues as they
arose. Knowing that several thousand PacifiCorp employees lived in these
communities, regular efforts were made to keep them informed of the latest
merger developments. In addition, a number of key ScottishPower and PacifiCorp
employees were assigned to work in local communities to resolve their
issues and answer questions about ScottishPower and the merger.

In the end, we delivered. We made our one-year approval target with a
week to spare. The deal was approved November 30, 1999 – on St. Andrew’s


Figure 5

PacifiCorp’s reach in 1998

Figure 5

Looking Ahead

Despite the thousands upon thousands of hours that went into making the
deal happen, the real work has only just begun. PacifiCorp has a workforce
of 8,000 – of which only 20 are strategically placed Scots. We need to
make sure all 8,000 employees are proud of PacifiCorp and ScottishPower
and anxious to help us all succeed. Their response thus far has been truly

Going forward, we face the significant task of seeing that PacifiCorp
delivers on our merger commitments to provide improved customer service,
increased shareholder value, increased community involvement, and an increased
commitment to the environment. These factors, together with our commitments
to efficiency and safety, will soon make PacifiCorp a top-10 U.S. investor-owned

For just as ScottishPower once reinvented itself to thrive in a newly-competitive
utility market, PacifiCorp will soon need to do the same. Retail electric
deregulation is occurring to some degree in most states, albeit at a different
pace in each jurisdiction. Federal laws about who owns and has access
to utility transmission systems will soon change the rules of the game
even more. PacifiCorp will learn to adapt because it must – and it will
have the benefit of ScottishPower’s experience to draw upon.