Long way to the finishing line

Last July a senior executive of Southern Company confided that it had considered launching a bid for National Power only to conclude that it would be biting off more than it could chew, writes Michael Harrison.

He was speaking the day after the Atlanta-based company had decided to limit its ambitions to a pounds 1.1bn takeover of South Western Electricity.

Ten months on, size is apparently no longer a stumbling block. But if the pounds 7.5bn merger of Southern and National Power is to proceed then it will have to overcome a mountain of regulatory and political hurdles in Britain and the US.

The regulatory obstacles on both sides of the Atlantic are onerous. Even if Southern does sell off a large minority stake in Sweb, the deal will raise objections from the electricity regulator, Professor Stephen Littlechild, and possibly the Office of Fair Trading, because of the vertical integration that would result.

This might not necessarily mean an automatic referral to the Monopolies and Mergers Commission, which has already given the go-ahead for two electricity bids that would involve much greater vertical integration.

However, the inevitable political uproar that would ensue, along with opposition from the consumer lobby, might oblige the Trade and Industry Secretary, Ian Lang, to pack the bid off to the MMC on vaguer public interest grounds.

The Government also has an indefinite golden share in National Power which enables it to block any takeover of the company. The veto, which restricts a single investor to no more than 15 per cent of the generator, would have to be lifted.

On the only previous occasion when a golden share was put to the test - in Ford's takeover of Jaguar - the Government chose not to use its right of veto.

Given National Power's position as Britain's biggest electricity generator and holder of strategic fuel stocks, the issue of national interest could arise.

But it seems unlikely that the Government would use this weapon. The only time in the last 20 years that the national interest has been invoked by ministers was when the Kuwaitis were instructed to reduce their shareholding in British Petroleum after its privatisation in the 1980s.

So the regulatory morass in the UK, though daunting, is not insuperable.