A pricey benchmark in the electricity sell-off

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The Independent Online
Central & South West has set a new benchmark in bidding pounds 12.70 a share for Seeboard. Set against the pounds 9.65 paid by SEI for Sweb, the first of the present wave of takeovers, or even the auction-inflated pounds 11.85 that North West Water bid for Norweb, this looks pricey indeed. You don't have to look far to find the explanation. And no, it doesn't have much to do with Seeboard's uniquely attractive qualities, even accepting it has any. Rather it is in Central & South West's determination to succeed.

Having failed in conjunction with Houston Industries to acquire Norweb, CSW was not going to be outgunned again. With just five regional electricity companies unaccounted for, the stock of available brides is getting low. In its determination to pull, CSW seems prepared to overpay, the more so since its erstwhile partner, Houston, was said to be in hot persuit of the same gal. The lessons of Norweb have plainly been learned; with UBS in place of Cazenove, CSW moved into the market to make sure of its prize by snapping up 23.9 per cent of the shares.

Disappointed for a second time, Houston now has an effective choice of only three - East Midlands, Yorkshire and London. The other two are thought to have made themselves sufficiently unattractive to deter even the most desperate of American suitors. You never know, however. The list of targets is now so short that even Northern - the outsider of the industry since it took on huge debts to ward off a bid from Trafalgar House - may be back on the list of bid candidates.

Of the others left in the game, Yorkshire and Swalec, the South Wales company, are top of most people's lists for a bid. London last week ruled out a merger with Thames Water, but is by no means out of the picture. East Midlands is available at the right price, though that may well be too expensive for some bidders' taste. The problem with Northern is judging what bid premium to pay for such a highly geared company.

There is now a sense of inevitability, even boredom, in the markets as the endgame in the electricity restructuring is played out. Even the Labour Party was unable to work itself up into a lather about it yesterday. The unspoken Government policy is to allow the electricity industry restructuring to proceed to its logical conclusion. Three bids - the latest one, National Power for Southern and PowerGen for Midlands - have yet to be cleared by Ian Lang, President of the Board of Trade, but it is hard to see him doing anything other than waving them through.

There can be no case for sending the Seeboard bid to the Monopolies Commission since it is a carbon copy of the offer for South Western by Southern Group of the US, which Mr Lang has already cleared. The approval of North West Water's ill-thought-out bid for Norweb can only be seen as a prelude to nodding through the other two. Not that there is anything wrong with this approach. Market forces stand at least as good a chance of delivering a properly competitive industry structure ahead of full deregulation of electricity supply as the Monopolies and Mergers Commission. With the Recs as they were, the chances of any kind of competitive market developing were pretty much zero.

Positive about Europe but not starry-eyed

It would be easy to dismiss yesterday's survey of business attitudes to Europe as another dull exercise with unexceptional results. After all, the CBI and British Chambers of Commerce have already made their views clear. A survey that shows most businesses want the Government to leave the single currency option open might seem to be both self-serving and unsurprising.

This particular exercise, however, carries a little more weight. For one thing, it is an opinion survey professionally conducted by one of the country's most respected polling organisations. It covered 1,700 businesses of all sizes and types. The results, showing a positive but not starry- eyed attitude to Europe, are the most authoritative we have on business opinions.

For another, the survey allows the two employers' organisations to lobby the Government from a confirmed position of strength against the siren voices of the Euro-sceptics. While there are plainly different shades of opinion about Europe within the business community, it does appear to make sense to talk about a business view. That view is a pragmatic and broadly sympathetic one; it wants the Government to be in a position to influence EU decisions. A majority of businessmen and women believe there is a danger that British influence in Europe is fading because our partners think we are lukewarm.

There is some evidence to support this contention. The Bundesbank is likely to succeed in its insistence that central banks joining the single currency will have to impose uniform reserve requirements on their banks. This would hit Britain, which has no reserve requirements, harder than any other country. If we had not been so half-hearted about EMU, the Bank of England might have been better able to resist the proposal.

Indeed, Britain's stayaway stance on EMU is in marked contrast to its very substantial influence on the EU more generally as far as measures affecting business are concerned. It has, for instance, spearheaded drives for deregulation and competition in important European industries such as telecommunications and banking. Most businesses think the EU and the single market have been good for them. More than half believe a single currency would benefit British industry. Although the significant minority sceptical about moves to closer union should certainly not be overlooked, the silent majority sent a clear message yesterday to the Europhobes. Nor was it merely of the "if you cannot beat them, join them" variety. It was more positive than that. It was that monetary union might actually be good for business.

Defaulting on debt better not spoken about

The currency markets took it seriously, the US bond market ignored it - a warning from apparently senior US Treasury officials that the US might be forced to default on its debts unless Congress raises the ceiling on what the Federal authorities are allowed to borrow. Such threats are not taken too seriously on the other side of the pond, where they are part of the cut and thrust of budgetary jousting with Congress. Even spoken in jest, however, it is a pretty extraordinary thing to threaten. Not since the Civil War have the American authorities defaulted on their debt and even then it was only the Confederates. If such a thing were hinted at by anyone in authority in Britain, it would spell death for the gilt- edged market. Investors buy bonds because they are thought of as bomb- proof; no bond market can be credible if there is sizeable risk of default. The US Treasury officials threatening default may not be serious, but if they value their bond market they would be wise to keep quiet. There is of course no prospect of default. Congress wouldn't dare do it, even to Bill Clinton.

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