East Midlands agrees pounds 1.3bn Dominion bid

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The Independent Online
The long-awaited takeover bid for East Midlands Electricity finally materialised yesterday when the regional electricity firm recommended a pounds 1.3bn cash offer from Dominion Resources, the US utility company.

Sir Nigel Rudd, East Midlands chairman, urged shareholders to accept the offer, arguing that it represented fair value for the company.

But there were growing fears in the markets that this latest bid, and last month's pounds 766m offer from US-owned CE Electric for Northern Electric, would be referred to the Monopolies and Mergers Commission.

"This dramatically increases the chances of an MMC reference," a leading electricity analyst said last night.

The fears kept East Midlands shares well below the 670p offer price. The shares closed 11.5p higher at 622.5p. Shares in Northern Electric slipped a further 15p to 593.5p. If both bids go through, it would bring to five the number of regional electricity suppliers owned by American companies.

In addition, it would leave just three of the 12 privatised regional electricity companies still in independent hands with separate stock market listings: London, Yorkshire and Southern. One theory is that the regulator, Professor Stephen Littlechild, will ask for the bids to be blocked because he would have too few quoted companies to use to make share price comparisons. Thomas Capps, Dominion's chairman, and Norman Askew, chief executive of East Midlands, spoke to Professor Littlechild on the phone yesterday. However Mr Capps had earlier insisted he saw no reason his bid should be referred to the MMC.

"We see no reason for it and we don't think it will. There's plenty of data out there," Mr Capps said.

Dominion directors, who will visit East Midlands' Nottingham offices for the first time today, claimed to have bold ambitions for the group. They are likely to encourage the planned expansion into domestic gas and electricity in the rest of the UK when competition arrives in 1998.

Mr Askew disclosed that East Midlands would be selling to homes in parts of the south of England in competition trials in the new year. Mr Capps said the UK was further ahead by five or six years in introducing utility competition: "The UK is a good learning laboratory for us."

In addition, East Midlands could launch a range of mortgage and consumer credit products, which Dominion sells in the US. Linwood Robertson, the group's senior vice-president, claimed Dominion was one of the largest providers of new mortgages in the US. He explained: "Obviously it's something we need to think about in the UK."

However, both companies said the deal would have no impact on jobs, which are likely to face further cuts in an ongoing restructuring programme. East Midland's workforce has almost halved from 8,684 in 1993 to about 4,500 today.

Dominion had confirmed it was considering making an offer for East Midlands last week but said at the time it was not prepared to pay much more than 608p a share. Talks aimed at securing a recommended offer lasted through Tuesday night, with both sides agreeing they had arrived at a fair price.

The company had already given away 266p to shareholders in the form of a special dividend worth pounds 1.20 and its share of the stake in the National Grid of pounds 1.46p a share.

Mr Capps said: "We bargained hard and they bargained hard. I don't think we stole it and I don't think they gave it away." City analysts broadly agreed that the price was reasonable.

UK electricity takeover bids since privatisation

Bidder Target Date Price Status

Trafalgar House Northern Electric Dec 94 pounds 1.2bn Bid Lapsed

Scottish Power Manweb July 95 pounds 2.4bn Successful

Hanson Eastern Electricity July 95 pounds 2.4bn Successful

North West Water Norweb Sept 95 pounds 1.8bn Successful

Southern company SWEB Sept 95 31.1bn Successful

PowerGen Midlands Electricity Sept 95 pounds 1.95bn Blocked by DTI

National Power Southern Electric Oct 95 pounds 2.8bn Blocked by DTI

Central and South

West Seeboard Nov 95 Successful

Welsh Water Swalec Dec 95 pounds 900m Successful

Avon Energy Partners Midlands Electricity May 96 pounds 1.7bn Successful

CE Electric Northern Electric Oct 96 pounds 766m Contested

Dominion Resources East Midlands

Electricity Nov 96 pounds 1.3bn Agreed