Goldman to scorch the earth for Sweb

THE FIGHT for South Western Electricity has taken on a new dimension with last week's appointment of US investment bank Goldman Sachs as an adviser to the company.

The move increases the likelihood that Sweb will opt for a "scorched earth" defence in the pounds 1bn hostile bid it faces from the US electricity concern Southern Company.

Goldman will use the expertise it gained in the US utility sector to develop a model that will stretch Sweb's gearing dramatically, far beyond the 60-80 per cent first mooted by the market when the bid was announced. Sweb could raise gearing to 170 per cent and above.

Evidence of this came in Friday's news from Northern Electric. Northern, concerned at the resumption of hostilities with Trafalgar House, said it would boost gearing to 175 per cent by March 1997, to fund a special package to shareholders worth pounds 2.50 a share. That figure is less than the 225 per cent it had proposed originally, when it faced a pounds 9.50 a share bid from Trafalgar House.

Northern's gearing was only reduced after Professor Stephen Littlechild's latest review imposed tougher price controls on the sector. Even after this package, several City analysts value Northern's shares as high as pounds 11. Few thought Trafalgar could recommence hostilities with an offer any less than pounds 9.50.

Trafalgar's chief executive, Nigel Rich, is examining Northern's package closely, but the company said there would be no rush to pronounce on its decision. It has until 10 August to respond.

Goldman Sachs has built a reputation as a defence specialist in the UK, and has been involved in several high-profile encounters. But this will be the first time it has been brought in to advise a UK client solely on its expertise in the US utility market. It boasts a top-rated utilities research team in New York.

A source close to Sweb conceded that Goldman's main role would be to explore how gearing could be expanded in line with US companies, most of which are comfortable with gearing of 100 per cent and over. This compares with the 12 per cent Sweb had at the time of its interim results in June, when net borrowings stood at a mere pounds 61.2m. That figure could rise to substantially in excess of pounds 300m, if Sweb were to go down the route chosen by Northern.

Sweb has retained Schroders as its lead adviser. Southern, the largest electricity generator in the US with a market capitalisation of over $14bn through its overseas arm, Southern Electric International, launched a dawn raid for 15 per cent of SWEB's shares a fortnight ago, at pounds 9 a share. It obtained just over 11 per cent.

Hopes of an agreed offer were short-lived, and talks were aborted after a day. Both sides claim the other was at fault. One source close to Southern said: "Sweb weren't prepared to offer any further information or reason why we should bid above pounds 9. Southern has done an enormous amount of due diligence on this, so the only option left was to bid at pounds 9."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
news
Sport
footballLive! Chelsea vs West Ham kicked off 10 Boxing Day matches, with Arsenal vs QPR closing the action
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
News
news
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
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

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all