Government to extract price for power merger go-ahead
Electricity: Southern would have to sell generating stations to gain approval for planned pounds 8bn marriage with National Power
Thursday 18 April 1996
As a political row erupted over Southern's announcement that it was seeking a "combination" with National Power, it emerged that the Georgia-based company could dispose of a significant number of power stations as the price for obtaining regulatory approval for the deal.
National Power, Britain's biggest electricity generator, has already agreed to sell off 4,000 megawatts of plant - accounting for more than 15 per cent of its capacity - and has shortlisted four buyers.
But Southern, which bought South Western Electricity for pounds 1.1bn last year, is thought to be prepared to get rid of more of National Power's stations, as a way of increasing competition and securing government support for the merger.
Southern is not thought to have formally sounded out ministers about its interest in National Power, although it has been eyeing the generator for almost a year. However, it is believed to have made contact with the Labour Party.
National Power shares soared more than 10 per cent to 578p as Southern confirmed its interest in the generator, while PowerGen, the other big generator, rose 29p to 599p on speculation that it too might be bid for by an overseas utility.
Southern said it would not make any further move until the Government had decided whether to approve bids by National Power and PowerGen for the two regional electricity companies, Southern Electric and Midlands Electricity.
But analysts and industry observers believe it is ready to package its offer in a way that will win the support of the National Power chairman, John Baker.
National Power issued a statement recommending that shareholders take no action and pointing to the 29 per cent annual return it had achieved for investors since privatisation in 1991. Its chief executive, Keith Henry, added: "We are confident that our plans for the future will continue to deliver excellent value for our shareholders."
The statement fell a long way short of a firm rebuttal of Southern's overtures. But National Power advisers stressed that it should not be read as opening the door to an agreed merger.
Meanwhile, John Battle, shadow energy secretary, attacked the "ad hoc restructuring" of the industry since privatisation and warned that continuing rationalisation could be against the public interest.
"We need to ensure a genuinely competitive structure in the electricity industry, from which the consumers should be the prime beneficiaries," he said. "I need convincing that this bid is in the public interest or the long-term interest of consumers."
The Consumers Association also weighed in against any merger of the two companies, warning that this latest development was "potentially disastrous" for consumers and for competition.
A spokesman added that the electricity sector could rapidly fall under the control of a few powerful groups, opening up the possibility of anti- competitive practices and unfair cross-subsidy.
Southern's intentions were sprung on National Power's top executives at a hurriedly convened meeting on Tuesday evening, which went on late into the night. City sources said that the discussions were amicable.
Comment, page 21
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