French groups plan to split Mid Kent assets

The takeover frenzy among the utilities took a novel twist with Saur and General des Eaux of France proposing to split the assets of Mid Kent Holdings, the water company in which they already jointly hold 39 per cent, writes Mary Fagan.

The French groups said that in the absence of a reference to the Monopolies and Mergers Commission - inevitable under the rules governing the industry - they would have announced yesterday a bid at about 440p a share, valuing Mid Kent at pounds 75m. Shares in the company surged 70p to 430p.

Under the proposed offer, Generale des Eaux would merge part of Mid Kent with its neighbouring subsidiary, Folkestone and Dover Water Services. Saur would merge its part with South East Water and some remaining assets would be jointly held. The French groups said that the joint initiative was not intended to set a precedent but was well-suited to the situation in the region. Mid Kent, however, said the announcement was unsolicited and unwelcome and could result in a prolonged period of uncertainty.

According to the partners, the move would result in benefits which "are such that the interests of the customers in the area in which the three companies operate, and the regulator's ability to compare effectively the performance of water suppliers in the southern region, will be enhanced". Assuming a favourable outcome on the MMC inquiry, they would seek the approval of the Mid Kent board.

Ofwat, the water industry regulator, said the planned takeover bid might fall within the jurisdiction of the European Commission. The watchdog also warned that it would be concerned about the loss of any comparator in the industry which could "impair the ability of Ian Byatt, Ofwat's director general, to carry out his duties".

In the past, Ofwat has demanded stiff price reductions to offset any damage to competition. It also suggested recently it may be appropriate for predators to seek a stock market listing for their UK water interests.

Ofwat said the most similar and recent proposed merger was between East Surrey Water and Sutton District Water where they agreed a 3.5 per cent price reduction over and above that already in place.