Hanson bids for Eastern
Tuesday 01 August 1995
Hanson made its long-awaited swoop on the electricity sector yesterday with an agreed pounds 2.5bn takeover bid for Eastern Electricity, the largest of the 12 regional companies.
The offer, the largest since Glaxo's successful pounds 9bn attack on its drugs rival Wellcome, prompted calls from the Labour Party and consumer groups for the takeover to be referred to the Monopolies and Mergers Commission.
The bid is the third within three weeks in the sector and at pounds 9.75 a share was seen as a new benchmark for bids in the industry.
Dealers speculated that it might force Scottish Power to lift its pounds 9.15- a-share offer for Manweb. Attention also focused on the pounds 9-a-share bid from Southern Electric International of the US for South Western Electricity.
Eastern's shares jumped 209p to 909p, but closed well short of the cash offer price as investors worried about the possibility of a referral of the bid to the Monopolies and Mergers Commission. Shares in Manweb fell for the same reason by 15p to 875p, but the market's uncertainty was underlined by Sweb shares, up 40p to 905p.
Hanson's shares closed 1.5p lower at 218.75p as analysts questioned the high price it appeared to be paying for Eastern. Derek Bonham, deputy chairman and chief executive of Hanson, defended the offer price, for what he called the "flagship" of the sector.
"We are fully committed to the future of energy, and Eastern fits extremely well into our declared strategy to make a large acquisition in a new field offering significant growth opportunities," he said.
The market has been expecting a bid from Hanson since the company demerged 34 of its smaller US companies in May, reducing group debts by pounds 855m. The move was widely viewed as a clearing of the decks before a large acquisition.
A regional electricity company had been tipped as a bid target because Hanson's large overseas profits had left it with an onerous advanced corporation tax liability, which could only be solved by the acquisition of a steady stream of UK earnings. Hanson had previously shown interest in the sector in 1990 when it took a stake in PowerGen, the electricity generator.
The pounds 2.5bn price tag, which will leave Hanson with gearing of 130 per cent, includes about pounds 500m for Eastern's 12.5 per cent stake in the National Grid Company, due to be sold off later this year. Mr Bonham would give no details of Hanson's plans for the stake.
John Devaney, chief executive of Eastern, said: "It is important to stress that it will be business as usual for Eastern people and for Eastern's customers, who naturally come first. The Hanson group recognises that electricity is something where you have to pay lots of attention to customers."
Mr Devaney, who becomes chairman of the electricity operation once the deal goes through, also said there would be no fresh jobs cuts as a result of the acquisition.
The takeover is conditional on the bid not being referred by the Government to the Monopolies and Mergers Commission and on "indications" from Professor Stephen Littlechild, the electricity watchdog, that he will not impose unwanted licence changes on Eastern or "seek undertakings" from the company.
Professor Littlechild called for an earlier bid for Northern Electric by Trafalgar House to be referred to the MMC but was subsequently overruled by Michael Heseltine, then President of the Board of Trade.
Professor Littlechild said last night that he had yet to form a view on Hanson's planned takeover of Eastern, but added: "I cannot commit myself to anything - that would be inappropriate."
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