The reports suggest that any deal to acquire ScottishPower is likely to cost E.ON in the region of GBP12 billion, valuing each ScottishPower share at between 600 and 650 pence. It is understood that the two sides have been discussing the terms of the transaction with their respective banks.

It still remains unclear how the UK antitrust authorities may react to a merger that sees ScottishPower aligned with Powergen in the E.ON group. It is likely that the regulator Ofgem will be consulted before the Competition Commission adjudicates on any potential divestments that may be required to maintain competition in the marketplace. By the same token, even a combined ScottishPower-Powergen would still have a lesser share of the UK residential market than Centrica, owner of British Gas.

Yet despite the seemingly advanced nature of the E.ON talks, ScottishPower’s compatriot Scottish & Southern Energy has been linked to a possible bid of its own for ScottishPower. SSE has apparently hired investment bank CSFB to advise it on the possibility of a bid, though the consensus among observers is that SSE may not risk a bidding war with E.ON, preferring instead to see how it could benefit from any possible disposals emerging from an E.ON-ScottishPower tie-up.