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Financial Statements

15. Acquisitions

On 24 August 2006, the acquisition from Southern Union Company of its Rhode Island gas distribution network was completed for total consideration of £269m, including acquisition costs of £3m. The goodwill arising on the acquisition was £144m. Goodwill principally relates to synergies, cost improvements, market and regulatory position, the assembled workforce and the potential for future growth.

The acquired operations form part of the Gas Distribution business and are presented within the Gas Distribution - US segment.

Other acquisitions that were carried out during the year ended 31 March 2007 were those of telecommunications tower operations in the US. The book and fair value of assets acquired was £72m compared with total cash consideration of £85m, giving rise to goodwill of £13m. Following the decision by management to exit our wireless infrastructure operations these acquisitions have been reported within discontinued operations and are presented in the balance sheet as businesses held for sale.

	Rhode Island gas acquisition			Other acquisitions
	Book value at acquisition under IFRS £m	Fair value adjustments £m	Final fair value £m	Book and fair value £m	Total fair value £m
Intangible assets	9	-	9	46	55
Property, plant and equipment	141	1	142	28	170
Inventories	19	-	19	-	19
Trade and other receivables	39	-	39	1	40
Deferred tax assets	4	7	11	-	11
Current liabilities	(20)	-	(20)	(3)	(23)
Borrowings	(41)	(7)	(48)	-	(48)
Pensions and other post-retirement benefit obligations	(25)	6	(19)	-	(19)
Provisions	(2)	(6)	(8)	-	(8)

Net assets acquired	124	1	125	72	197
Goodwill arising on acquisition			144	13	157
Total consideration			269	85	354

Fair value adjustments primarily related to the revaluation of pensions and other post-retirement obligations, provisions and borrowings to their fair value at the date of acquisition. The fair values of the assets and liabilities acquired have been updated from the provisional fair values reported in our half year results for the six months ended 30 September 2006. Deferred tax assets on these adjustments amounted to £7m.

The outflow of cash and cash equivalents on the acquisitions in 2007 was as follows:

	Rhode Island gas £m	Other acquisitions £m	Total £m
Cash consideration	269	85	354

In the consolidated income statement for the year ended 31 March 2007 the operating profit of the Rhode Island gas distribution network was £17m representing the post-acquisition results for the acquired business. If the Rhode Island gas distribution network had been acquired on 1 April 2006, the results would not have been materially different.