Bid talk boosts East Midlands

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The Independent Online
Takeover speculation and a management streamlining to take advantage of electricity deregulation in 1998 boosted the share price of East Midlands Electricity 32p to 895p yesterday.

Talk of more bids in the electricity sector returned after Ian Lang, President of the Board of Trade, overruled the Office of Fair Trading on Thursday and refused to refer North West Water's bid for Norweb to the Monopolies Commission.

Other gainers were Yorkshire, a perennial bid favourite, up 11p to 898p and London, up 14p to 906p.

East Midlands, which boasts of being the first regional electricity company to return cash to shareholders as a special dividend earlier this year, is to reorganise into three separate businesses by March next year.

Although there was no suggestion that this was a prelude to a demerger, East Midlands claimed that the move was a pioneering development aimed at showing how an independent regional company could meet the challenge of deregulation, when the domestic market is opened up to competing suppliers.

The proposed takeovers of Midlands Electricity by PowerGen and Southern by National Power are both reactions to the changes looming in 1998. The two electricity generators wish to establish billing and servicing networks so they can compete around the country.

Norman Askew, Midlands' chief executive, said: "These changes will help us keep a downward pressure on prices, enable us to continue to generate funds for investment, improve customer service and realise value to shareholders. We will continue to set the benchmarks of performance for this industry."

The three new business units reflect the way the industry will work from 1998. They are the electricity distribution network, the basic regulated company whose wires carry the power; electricity metering, whose technology is to be critical to the new regime under which competing companies supply power to private homes; and the supply business, which sells the electricity and - in East Midlands case - gas.

With the gas industry being similarly deregulated from next spring, when a pilot project starts in the South West, electricity and gas companies are both attempting to be multi-energy suppliers.

East Midlands said it was committed to being independent and to improving its record as a low cost supplier. The changes were designed to streamline the businesses.