Hanson's power plans face Offer threat
Wednesday 20 March 1996
The Monopolies and Mergers Commission is to report within weeks on proposed takeovers by National Power and PowerGen of, respectively, Southern Electric and Midlands Electricity. Industry sources say that if these bids are stopped, the regulator would then question whether Hanson should be allowed to build up a powerful vertically integrated electricity company.
The view in the City is that the Government decided to refer the National Power and PowerGen bids because they would recreate the vertical structure - combining generation with regional distribution and supply firms - that was dismantled before the industry was privatised. Hanson's takeover of Eastern, coupled with its ambitions in generation, have a similar effect.
Announcing his decision late last year, Ian Lang, President of the Board of Trade, said: "I have decided to refer the PowerGen/Midlands Electricity and National Power/Southern mergers to the MMC because I consider that each of them raises competition concerns in the generation and supply of electricity in England and Wales."
Offer refused to comment on the structure of the industry and the implications of the MMC's report. However, one industry source said that Professor Stephen Littlechild, Offer's director general, had made plain his concerns. The source said: "If the generators' takeover bids are blocked on the grounds of vertical integration he would raise questions over Eastern's attempts to buy the National Power plants. That would be where he is coming from."
The MMC was originally due to report to ministers by the end of the week but on Monday was granted an extension to 4 April.
If Hanson succeeds in buying the three power plants from National Power, it would emerge as one of the largest UK generators. The group has already agreed to pay about pounds 400m for the lease of two generating stations from PowerGen and industry analysts estimate that it could have 12 per cent of the market in England and Wales within a few years. This compares with a projected 16 or 17 per cent for PowerGen and an expected decline in National Power's share to about 23 per cent or less, from 34 per cent last year.
Hanson is bidding for the National Power stations against companies including Applied Energy Services and Mission Energy of the US. Two other US groups, as yet unnamed, are also known to be in talks with the UK generator but at a less advanced stage. The plants are West Burton in Nottinghamshire, Ironbridge in Shropshire and Rugeley in Staffordshire. Both National Power and PowerGen have been forced to dispose of plant because Professor Littlechild wants more competition in the generating marketplace.
The delay in the MMC's report has fuelled speculation that it may recommend that ministers clear the bids, but only if the generators meet stringent conditions. It is thought that the companies would resist pressure to sell off yet more power plants, particularly in the light of government plans to privatise the most modern nuclear power stations as one company.
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