Lang gives Northern bid green light
Saturday 14 December 1996
The decision wrong-footed several City analysts who had predicted an MMC investigation and sent shares in all five remaining independent RECs soaring. Northern's share price jumped by almost 7 per cent, from 602.5p to 642p, just short of CE Electric's raised 650p all-cash offer.
Shares in the three remaining independent RECs which are not subject to takeover bids also surged ahead, with London Electricity rising 28p to 679.5p, Southern Electric adding 27p to 774.5p and Yorkshire Electricity jumping by 13.5p to 756p.
The decision also makes government approval of the agreed pounds 1.3bn takeover bid by US utility Dominion Resources for East Midlands Electricity almost certain. Sources said it would be inconceivable that Mr Lang would refer the Dominion bid to the MMC after having given the go-ahead for the bid for Northern. East Midland's shares were up 30p to 656.5p, compared with Dominion's cash offer of 670p.
Some leading City investors had also expected an MMC referral on the basis of recent surprise decisions by Mr Lang, including his ruling blocking bids for South West Water by rival water companies.
There was speculation last night that other US utilities would make bids for RECs early in the new year, with the industry facing a complete carve- up before the general election. One analyst suggested Entergy, the New Orleans utility, could renew exploratory discussions with London Electricity.
Yorkshire Electricity last night denied it had received any bid approaches. A spokesman said: "We are not in any talks with anybody. We've been asked the same question for the past 18 months and there's always been the same answer."
Mr Lang's announcement said the DTI had been given specific assurances by CE Electric that it would maintain Northern's "financial and management resources", reflecting concerns expressed by Professor Stephen Littlechild, the industry regulator. CalEnergy, the US power generator which is CE Electric's biggest shareholders, has debts of around $2bn (pounds 1.2bn) and has been frequently quizzed about its debt rating.
Northern's chances of fending off the bid were helped yesterday as another leading City investor came out in support of the company's existing management, led by chairman David Morris. Foreign & Colonial which holds 1.5 per cent of Northern shares, gave the board its backing. David Manning, and F&C director, explained: "We believe that the current bid for Northern falls well short of a fair value for the company. Northern has delivered on all its promises to date and we feel we should support them in rejecting the final offer."
The Prudential, Northern's biggest shareholder, also pledged to continue supporting the existing management, having raised its stake in the company slightly this week to 11.35 per cent. A spokesman explained: "Our decision was based on our perception of value in the company and this was clearly unaffected by the announcement."
Northern also claimed that another big, but unnamed investor with more than 2 per cent of the company was throwing its weight behind management.
David Sokol, chief executive of CalEnergy, is thought to be meeting the Prudential on Monday in a final lobbying campaign before the Friday 20 December deadline. Mr Sokol insisted his offer remained fair, despite the rise in Northern's share price: "If our offer fails then Northern's shares will head back to the 494p price before we launched the bid."
One obstacle could be Northern's vocal band of small shareholders which controls a total of some 21 per cent of the company.
Chris Foote Wood from the Northern Small Shareholders Association said he would fight to the bitter end to keep Northern independent.
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