Grid sale blow to power bidders
Monday 21 August 1995
The Government has called on the regional electricity companies to relinquish all their holdings in the National Grid Company, which is due for a pounds 4bn flotation later this year. The move could be a blow to predators such as Hanson - now bidding pounds 2.5bn for Eastern Electricity - which may wish to retain the NGC stake for the lucrative dividends stream it pays to the 12 regional firms.
A letter sent last week from the Department of Trade and Industry to Kleinwort Benson, the merchant bank advising the companies on the grid, makes it clear that it is against any REC retaining its stake.
One City source said: "It is not obvious that any new owner of the regional companies would want to sell their stake in the grid. Hanson, for one, is unlikely to want to sell as the logic of buying Eastern is to get a stable source of UK profit."
Hanson plans to put Eastern's share of the grid in a holding company before deciding whether to sell it or keep it. Eastern, which has a 12.5 per cent stake in the grid, received pounds 23.5m in dividends last year. Hanson's pounds 2.5bn offer for the electricity firm includes about pounds 500m for the grid stake.
Failure by any of the 12 companies to dispose of their part of the NGC would also raise the thorny issue of whether their customers would be deprived of any rebate when the grid is floated.
The Government wants UK electricity customers to get a payout of at least pounds 25 each when the NGC is floated - the intention being to show that privatisation benefits the public as well as shareholders.
The letter from the DTI is the latest twist in the long drawn-out battle over the future of the grid. Recently Bob Reid, chairman of London Electricity, said the disposal could be delayed until next year because of the recent changes in the Government and the difficulty in getting the detailed attention that the deal requires.
The 12 regional electricity companies have spent months trying to agree between themselves and with the Government how much they should give out in customer rebates when the grid is floated and how much they will pay in windfall tax. Some companies have argued that if the Government exacts too high a price - the tax is expected to be between pounds 700m and pounds 1bn - they would be better off retaining their stakes.
The debate takes place against the continued takeover frenzy in the sector. Manweb will today release its first formal defence against a pounds 1bn hostile bid by Scottish Power.
Later this week, South Western Electricity may deliver its expected package of sweeteners for shareholders - worth about pounds 5 per share - in its attempt to fend off a pounds 1bn attack by Southern Electric International of the US.
But the real crunch could come at the end of the week when the Government may announce whether it will refer the SEI bid for SWEB to the Monopolies and Mergers Commission. Although the Gov- ernment has an extension until 1 September to deliver its verdict, the industry expects a decision well before the deadline.
As ministers are also taking advice from the Office of Fair Trading on the bids for Eastern and Manweb, there is some speculation that they may decide to refer the entire sector in order to lay down some ground rules for acquisitions.
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