Labour says it will refer bids for utilities to MMC
Tuesday 03 October 1995
Jack Cunningham, Labour trade and industry spokesman, said: "We reject the growing accumulation of unaccountable private monopoly power. The Monopolies and Mergers Commission must be used to safeguard the national and consumer interest. If not, a Labour Government will make a retrospective reference."
Pressure for an MMC reference further intensified with renewed calls for an investigation from the National Consumer Council. A spokeswoman for the MMC said: "The case for each electricity bid to be referred to the Monopolies and Mergers Commission becomes ever more pressing as takeover frenzy gathers momentum." She added: "If this takeover goes ahead it will be a form of vertical integration in the industry and consumers will want to know how it will affect them."
The bid for Southern, one of the two largest regional supply and distribution companies, is the seventh in the industry so far. It comes two days before Offer, the industry regulator, is due to submit its report on the proposed takeover of Midlands Electricity by PowerGen to the Office of Fair Trading.
City analysts said National Power's move would increase the likelihood of an MMC reference.
But there is also a view that Ian Lang, president of the Board of Trade, would prefer to clear all attempts to acquire regional electricity firms. Shares in Southern Electric surged by 69p to 966p while National Power fell by 12.5p to 503.5p.
John Baker, chairman of National Power, said the merger is "wholly logical" in the light of developments in the sector. He defended previous statements that National Power was not seeking to buy a regional company, saying the Government had changed the situation by clearing a hostile takeover bid by Scottish Power for Manweb.
Mr Baker said: "What has changed is not our view but the way in which the market is evolving and the fact that the Department of Trade and Industry appear to be saying they do not rule out vertical integration in the industry."
He added: "We simply have to join in the process of rationalisation in the industry rather than stand on the sidelines." Mr Baker said the merger would transform National Power into a broadly based energy company able to compete more effectively in the national electricity supply market when it is opened up fully in 1998.
Unions warned that there could be further job cuts. Mick Brade, southern region representative for Unison, said: "We would give it two cheers out of three. Three cheers would have been Southern Electric remaining independent or taking over somebody else."
National Power refused to be drawn on possible redundancies or on whether Southern's headquarters in Maidenhead would remain intact. The generator has 5,000 employees and expects to cut 500 jobs over the next year or two.
Southern's core workforce of 3,650 is already projected to fall to about 3,000 by the end of the decade.
The pounds 2.8bn offer represents pounds 10.10 per share, split between pounds 8.25 in cash and a special dividend of pounds 1.85. The dividend will carry a tax credit for some shareholders, taking the value of the offer to pounds 10.56.
National Power said that in the event of the sale of the National Grid Company before the completion of the merger, up to pounds 1.75 of the special dividend would be clawed back and Southern's shareholders would receive grid shares. If the NGC sale is after the merger, National Power would sell any grid shares inherited through the takeover.
The takeover is expected to take National Power's gearing to more than 100 per cent initially, falling back after the NGC sale and the planned disposal of three power plants. It is expected to significantly enhance National Power's earnings but, combined with the plant sales, the effect on earnings will be neutral.
Separately, Norweb said it would recommend a pounds 1.72bn offer from North West Water unless a rival US bidder, Texas Energy, increases its terms.Texas is expected to raise its offer but there was also speculation it could switch its attentions to London Electricity.
Comment, page 17
Status of bids in the electricity sector
Target Bidder Status
Southern Electric National Power Agreed*
Midlands Electricity PowerGen Agreed*
Eastern Electricity Hanson Unconditional
SWEB Southern Co. (US) Unconditional
Manweb Scottish Power Contested
Northern Electric Trafalgar House Abandoned
Norweb North West Water* Rival bid by Texas Energy
* Subject to regulatory approval
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