City & Business : Bonanza time again in the great utility lottery

It will be a bitter pill the doughty people of the Dales will have to swallow this week. A glass of water, before depleted local reservoirs next run out, might ease the passage as their favourite local company lifts its dividend by 10 per cent or more.

An even bigger special payout, disguised as a share buyback, may also be on the cards as Yorkshire Water shrugs off the pounds 40m cost of last year's drought. To hide its embarrassment, and escape the fury, Yorkshire might be advised to hold its annual results meeting in another county - following ex-managing director Trevor Newton's infamous precedent by bathing investors in riches out of sight.

For Londoners, Thames Water will also join the splurge, following Anglian and others last week. That was a week, by the way, in which regulator Ofwat warned water firms to cut leaks dramatically by 1998, or else.

Since privatisation in 1989, most have an appalling record in meeting even their own targets, Ofwat found. Thames, Severn Trent and surprise, surprise Yorkshire - where the glass only fills two-thirds full these days - had actually increased the amount spilling out of pipes, drowning unsuspecting moles underground.

Improvement takes investment, and good management, but no matter; it's bonanza time as the great utility lottery cranks up again.

Scottish Power's pounds 1.56bn bid for Southern Water set the sparks flying, prompting Southern Electric to put up its fists. It was stirring to watch: Ethelred the Unready was not going to let Braveheart run off with the Oscars this time round. And the rest of the pack now dish out the Danegeld, lest City institutions deliver their heads to the invader, too.

Multi-utility strategies have a superficially attractive logic. Companies cut costly duplication of billing and administration by selling the same consumers water, electricity, gas or telecoms. Such bids have the added benefit that utilities stick to what they know best: delivering basic services into homes and businesses.

No repeat of the unfocused empire-building that saw Severn Trent blow pounds 212m on waste firm Biffa and other utilities write off millions on ill- starred diversification into property and contracting, in the UK and overseas.

Better news for investors and - when regulators catch up - for consumers on prices, too.

With 1998 beckoning, when unfettered competition will enter the electricity sector, water companies also have undoubted attractions, with millions of captive customers to use as a marketing base.

The ongoing takeover frenzy, though, smacks less of strategy than of the last gluttons in town - wallets bulging with cash - picking off whomever they can chew.

Scottish Power's attraction to Southern Water seems as much to do with the fact that it's not Thames or Severn Trent (too big), Yorkshire (a pariah) or the rest (guests of the Monopolies and Mergers Commission or already taken over), than putting a thistle up the local electricity company, come 1998.

Regulation has also turned strategy to lottery. Water/water bids automatically go to the MMC, yet electricity/water or vice-versa escape that net.

Theoretically, Ofwat itself can push hard enough for any water bid to be referred: it launched its latest "consultation" on Southern Water last week, but the market took that in its stride. It knows Southern will fall, with whatever sops to the consumer either bidder feels it can least get away with.

The method in Trade and Industry Secretary Ian Lang's madness is also a mystery on which students of chaos theory must now be writing theses. His decisions - to block the generators' bids for regional electricity companies, after allowing Scottish Power to nab Manweb - are no ringmaster's model.

Rather, it's as if the referee wades in with a swing at whichever fighter he doesn't take a fancy to at the time.

Of Scottish Power and Southern Electric, the latter's bid - with the two regions at least overlapping - looks the more logical. But only Ian Lang's big black eye for National Power (to whom it had given its hand), turned Southern Electric from prey to poacher.

It had been talking to Southern Water about co-operation for years, but so much for strategy - without Scottish Power's impudence, it probably would not have bothered bidding at all.

(Perversely, the Labour Party's still vague windfall tax may be adding to the scramble. The argument? If you gear up with debt for deals, you might yet claim you are less able to pay).

So what is there left to rescue from the post-privatisation melee? Water company investment, for starters.

Unlike electricity or gas, there is no national water network to which competitors have unfettered access. So come 1998, water firms will still be local monopolies, sitting ducks throwing off valuable cash.

Bigger dividends do not pay to stop leaks, renew pipes, preserve reservoirs or clean up rivers and beaches. Regulators should use ample evidence, from the higher dividends, that water firms can invest more to force the pace. Not issue wishy- washy "or else" warnings like Ofwat's last week - that it might do something if they haven't finally cleaned up their act two years down the line.

Rice at the wedding

WELCOME back to Lucas, or LucasVarity as it will be called. If Friday's pounds 3.2bn merger goes through in September, after a near five-year absence, the stalwart of British engineering will be catapulted back into the FT- SE 100 index. It seems a marriage made in heaven, placing the group fifth among the world's automotive component makers.

There is still ample scope for slips, however - not least the prospect of a rival bidder, which still gives a fair premium to the Lucas share price.

Crucially, too, after George Simpson decamps to GEC, it has to prove the new management will work. Victor Rice of Varity - the former Massey Ferguson - steps into Simpson's shoes, but noticeably so far there is only one other executive appointment: Lucas's John Grant as finance director. Former Midland banker Sir Brian Pearse stays in the chair, but among the eight other non-executives there remains a lot to fight for.

Mr Rice is little known in the UK, but his reputation seems sound. An analyst was troubled by one quirk, however. "He changed Massey's name to Varity after Victor A Rice. If that's not egomania, what is?"

Nuclear fizz

CONGRATULATIONS to British Energy and its advertising gurus Lowe Howard Spink. They were coy last week about the privatisation's pounds 5m TV campaign before Tuesday's launch. But, as predicted, Sizewell B and nuclear waste it is not.

With the ad's gaggle of athletes, leaping hurdles round the track, investors might be forgiven for thinking they were buying shares in Lucozade, not a nuclear utility.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

Recruitment Genius: Security Officer

£16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

Ashdown Group: Business Analyst - City, London

£50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss