Advisers on power deals make pounds 300m

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The Independent Online
FORGET the fat cats in the boardroom. The biggest winners in the great electricity shake-out are the merchant banks, lawyers and other financial advisers who have so far netted almost pounds 300m for their services. Even spin doctors can now expect seven-figure cheques for promoting their client's cause.

And with five of the 12 regional electricity companies (RECs) still up for grabs, the final bill for the bid fees could approach pounds 400m - enough to have bought a medium-sized power company at flotation five years ago.

Ironically, the sheer size of the sums paid by the RECs and their suitors for professional advice is undermining some of the commercial reasons behind the recent bout of takeover activity.

"One of the rationales for merging two regional electricity companies is to strip out headquarters costs," says a source closely involved in one of the bids. "The saving could be anywhere between pounds 20m and pounds 50m, but that could be spent on the bid alone if it is contested."

The largest fees paid so far have been in hostile takeovers where the bidding company has sought access to additional capital, either in the form of equity from shareholders or syndicated loans from banks, to fund the deal. "Friendly deals are not as rewarding as hostile ones," confirms a merchant banker closely involved in one of the recent takeovers.

Last week, Scottish Power revealed that its contested pounds 1.1bn takeover of Cheshire-based Manweb cost the two companies nearly pounds 60m in bid fees, though the final defence bill has yet to be worked out.

Based on available information, the Manweb deal looks the most expensive so far. But it could be topped by the equally protracted tussle for neighbouring Norweb, where Warrington-based North West Water eventually saw off a rival bid by Houston Industries and South West, two US power groups that acted in concert.

In an offer document sent to shareholders, North West Water estimated it would spend pounds 38m on expenses related to its pounds 1.8bn bid. The figure included pounds 14m in fees to underwrite a pounds 567m rights issue to fund the deal.

Neither Norweb nor the two US utilities have yet revealed how much they paid in bid costs. But even an agreed cash offer is likely to run up fees of at least pounds 10m, so the final bill for the Norweb takeover saga could easily top pounds 60m.

Although Southern and Eastern - the two biggest RECs - have been snapped up, the fee bonanza is by no means over. Three of the six biggest power companies at privatisation - London, Yorkshire and East Midlands - remain at large, while last week Welsh Water confirmed it was considering a bid for Swalec, smallest of the RECs before bid rumours started.

The cost of bids

Bidder/Target Bid value Estimated

total bid fees

Scottish Power/Manweb pounds 1.1bn pounds 60m

North West Water/Norweb pounds 1.8bn pounds 60m

National Power/Southern pounds 2.8bn pounds 40m

Trafalgar House/Northern pounds 1.2bn pounds 35m

Powergen/Midlands pounds 1.9bn pounds 30m

Hanson/Eastern pounds 2.5bn pounds 20m

Central & SW/Seeboard pounds 1.6bn pounds 20m

Southern Co/SWEB pounds 1.1bn pounds 15m