Dominion Resources, the parent company of Virginia Electric and Power, was reportedly set to launch a takeover of East Midlands but state regulators refused to sanction the deal because of concerns about the financial impact on its 1.8 million customers in Virginia and North Carolina.
Despite the apparent block which effectively kills off a bid by Dominion, shares in East Midlands continued to surge ahead, ending the day 16p higher at 597p. The shares have risen by 15 per cent in the last month as the conviction has grown that East Midlands is about to become the eighth regional electricity company to lose its independence.
Shares in the other independent RECs also rose strongly with Yorkshire adding 20p to 7230p, London putting on 18p to 638p and Southern ending 19p highger at 682p. Industry sources suggested that while Dominion may have been preparing a bid, East Midlands might not have been its target. It was also pointed out that a number of other US electricity groups, including Houston Industries and Pacificorp, are also still being touted as possible bidders.
Dominion' market capitalisation is $6.7bn and revenues last year were $4.6bn. It has 10,300 employees. The Virginian group is not thought to have approached East Midlands or held informal talks, however, and is less likely to do so now after Virginia's State Corporation Commission refused to sanction a bid.
A 1992 federal law gives state regulators a role in overseeing certain foreign investments by utility holding companies. This prevents electric utilities from investing more than a certain proportion of their assets overseas. Approval is usually routine, but a previous clash between Dominion Resources and the SCC may have contributed to the impasse over the British deal.
Two years ago, Dominion Resources challenged the SCC's authority to intervene in a management feud it was having with Virginia Power. "It's all about the late unpleasantness," one source said.
East Midlands, which is generally regarded as one of the mot efficient and best managed of the RECs, refused to comment on the takeover speculation. Both its chairman Nigel Rudd and chief executive Norman Askew are on holiday and neither have plans to cut short their summer breaks.
The company, which supplies 2.2 million customers, is currently valued at pounds 1.2bn but any successful takeover would probably have to be pitched at a premium of at lest 20 per cent.
Three of the 12 RECs have so far been acquired by US utilities. South Western Electricity was the first to fall, agreeing to a pounds 1.1bn bid from the Southern Company of Atlanta, Georgia.
Seeboard, serving the South-east, was taken over by Central and South West of Dallas, Texas, and Midlands fell earlier this year to Avon Energy Partners - a consortium of General Public Utilities of New Jersey and Ohio-based Cinergy - after PowerGen was blocked from bidding by the Government.Reuse content