A recent Office of Fair Trading report castigated the City for its expensive fixed fees for underwriting, regardless of size and type of deal, and called for greater flexibility and more willingness among companies to bargain with their bankers.
For Scottish Power, one factor making a performance-related deal more attractive is likely to be the risk of action by Professor Stephen Littlechild, the electricity regulator, whose reopening of the price review in the spring scuppered the Trafalgar House bid for Northern.
Scottish Power's bankers are to receive 0.25 per cent of the pounds 330m underwriting if the bid fails and 0.75 per cent if it succeeds, compared with the more normal 0.5 per cent flat fee for underwriting. The banking fees are to be split 60:40 between Barings, which proposed the commission structure, and Morgan Grenfell.
James Capel and UBS, the brokers, will similarly receive 0.125 per cent for failure and 0.375 per cent for success, rather than a standard 0.25 per cent flat fee. In total, the banks and brokers are set to earn nearly pounds 2.5m more if they win than if they lose. However, institutional sub-underwriters for the deal will continue to collect the standard 1.25 per cent fee.
Dan Clague, a director of Barings, said: "As far as we know this is the first success-related underwriting for a transaction of this size in the London market."
Scottish Power's offer document, published yesterday, also announced a five-year pounds 800m revolving credit facility as part of the financing for the bid, from a syndicate led by Royal Bank of Scotland but excluding any English clearers.
The other six members are all from the continent or the US. John Roberts, chief executive of Manweb, said the offer document reinforced his view that the bid undervalued his company.