Swedish giant eyes Scottish power firm

Scottish and Southern Energy was reported to be in £11bn takeover talks with a state-owned Swedish power giant.

The firm, which is the UK's second biggest power company, is understood to be holding talks with Vattenfall, according to the Mail on Sunday

The move follows years of speculation linking the two groups, but the talks are thought to be at an early stage, and any takeover is understood to depend on the outcome of an auction of Dutch energy firm Nuon.

Vattenfall is currently bidding for Nuon, Holland's second biggest energy company, and the Scottish and Southern Energy talks are reported to be a fall-back position if it is unsuccessful.

Stockholm-based Vattenfall is one of the leading energy producers in northern Europe and it is has a huge cash fund for acquisitions. It is understood to have wanted to move into the UK market for some time.

A Scottish and Southern Energy spokeswoman declined to comment on the speculation. No-one from Vattenfall could be contacted.

On Friday, Scottish and Southern Energy became the second UK energy firm to announce price cuts for its customers, following an earlier move by British Gas.

The group, which has nine million domestic customers, said it was reducing average electricity prices by 9 per cent and gas prices by 4 per cent from 30 March, due to lower wholesale energy prices.

It also said it was on course to deliver a "modest" increase in adjusted pre-tax profits on the £1.23bn it made in the year to March 2008.

The firm made £302.6m in the six months to 30 September, but expected to make the bulk of its profits in the second half of the financial year as the price hikes and higher winter demand took effect.

It also plans a rise of at least 9.1 per cent in its full-year dividend.

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