The Government opened the way for a surge of takeovers in the water industry by giving the long-awaited clearance for a bid for Northumbrian Water by Lyonnaise des Eaux of France. The required price cuts as a condition for any bid were attacked as "feeble" by the Labour Party and as "peanuts for customers" by Northumbrian.
Ian Lang, President of the Board of Trade, said that should Lyonnaise bid, price reductions of 15 per cent on water bills in the region would be phased in by 2001-2. He also said that the French group should list its entire UK water interests on the Stock Exchange by 2005. The announcement is expected to spark an early bid by Lyonnaise.
The price cuts, which were recommended by Ian Byatt, the water industry watchdog, were originally expected to be up to 20 per cent and to be implemented within four years.
Under the present scheme, the reduction in the first two years will be only 1 per cent - about 90p for the average household in the area - rising to 2 per cent in year three and 10 per cent in year four. Mike Taylor, Northumbrian's finance director, said: ''We are surprised at the leniency of the clearance conditions. As far as customers are concerned these cuts are an irrelevance in the first few years. Lyonnaise have certainly done a good job for themselves but it is a very poor deal for customers."
A spokeswoman for Ofwat said: ''In our view it is a realistic condition. It reflects a realistic situation and we had to do what was achievable."
Mr Byatt also moved to stem any frenzy of bids in the sector by warning that the President of the Board of Trade has a duty under the Water Industry Act to refer mergers between larger water companies to the Monopolies and Mergers Commission. "In my view, the approval of this merger by the President of the Board of Trade does not mean that the way is clear for the spate of takeovers currently under way in the electricity industry to spread to water. The Water Industry Act sets a framework within which inquiries into certain mergers within the industry must be conducted," he said.
Lyonnaise des Eaux already owns North East Water, the water-only company neighbouring Northumbrian, and would merge the two.
The company said that the pricing conditions ... will have "significant implications for the value of Northumbrian to Lyonnaise". But it added: "Notwithstanding the severity of the conditions imposed, Lyonnaise recognises that this is the only basis on which it will be allowed to proceed and proposes to enter into discussions with the board of Northumbrian to establish whether there is a basis on which both parties can agree terms for an offer."
City analysts believe the French group would have to bid between pounds 11.50 and pounds 12 per share for Northumbrian. Thecompany's shares jumped by 66p to close at pounds 10.74 last night.
It also emerged yesterday that North West Water has won 76 per cent of Norweb, the regional electricity firm, following last week's clearance of the takeover. Ken Harvey, Norweb's chairman and chief executive, and Brian Wilson, finance director, will leave next week "to pursue other interests and opportunities". It is thought Mr Harvey will gain pounds 2m from ending his contract and his share options. Mr Wilson is expected to gain about pounds 450,000.Reuse content