Northumbrian Water yesterday became the first of the 10 major water and sewage companies in England and Wales to succumb to a bid, agreeing to a pounds 823m cash offer from Lyonnaise des Eaux of France.
The deal follows recent clearance by the Government on condition that Lyonnaise cut water bills in the region by 15 per cent by 2001. The French group said months ago that it might be interested in making a bid but only when the regulatory situation became clear.
The directors of Northumbrian, who will remain with the enlarged group "to achieve the goals of the merger", stand to gain more than pounds 1.6m as a result of the takeover. David Cranston, chief executive, is the main beneficiary with his shares and share options yielding him about pounds 750,000.
Sir Frederick Holliday, chairman of Northumbrian, said: "It has been almost nine months - a good gestation period - and what I think has been born is a fairly lusty child. Of course the hearts of the Northumbrian board maybe at one point said one thing while their head said another. But the head ruled at the end of the day - this is a very fair deal for shareholders and customers."
The offer values each Northumbrian share at pounds 11.79, including pounds 11.65 in cash and a special dividend of 14p net.Shareholders will also retain the interim dividend of 11p to be received on an accelerated basis.
The price, which City analysts said "looks like full value", represents a 4 per cent increase over the Northumbrian shares on Wednesday and a 59 per cent premium over the level in March, just before Lyonnaise made its interest known. Analysts have mixed views over whether this may presage a spate of takeovers. One said: "I still do not see where all the supposed bids are coming from."
The French group, which already has UK water companies including North East Water, Northumbrian's neighbour, said that there would be a reduction in jobs in the core regulated businesses to help "achieve the severe price cuts being imposed". But Lyonnaise has also guaranteed that there will be no compulsory redundancies, with people being offered jobs elsewhere in its international operations, or in new training and research facilities to be established at Newcastle upon Tyne.
Lyonnaise will now consolidate the two companies in the north east as Northumbrian Water Group. This holding company will also act as an umbrella for Essex and Suffolk Water, which was acquired by Lyonnaise in 1989.
Jacques Petry, President of Lyonnaise's international water division, reiterated the commitment not to buy any more UK water interests for at least 10 years. The group has also agreed to seek a listing on the Stock Exchange by 2005 for its UK water-related operations.
Patrick Babin, finance director of Lyonnaise, will be joint managing director with Mr Cranston of the enlarged group. Sir Frederick Holliday will become chairman and, pending approval, will join the board of Lyonnaise. The other executive directors "will continue in their current functions", and the non-executives will also be "offered similar positions" in the enlarged group.
Mr Babin said the deal is subject to approval by the European Commission, but added: "We know they are happy in principle with this transaction. We hope to get clearance within two to three weeks."
The Government conditions, when it approved a potential bid earlier this month, were attacked as "feeble" by the Labour Party, and as "peanuts for customers" by Northumbrian. Although the 15 per cent price cuts suggested by the regulator Ofwat appear swingeing, they were less than expected.
The main criticism is that the phasing means the reduction in the first two years will be only 1 per cent - about 90p for the average household - rising to 2 per cent in year three and 10 per cent in year four. At the time Northumbrian said that the conditions were "lenient" and a "poor deal" for customers.Reuse content