Midlands counter-bid battle recedes
Wednesday 08 May 1996
The pounds 1.7bn agreed bid yesterday from the Ohio-based electricity supplier Cinergy and General Public Utilities of New Jersey was not as high as some analysts had forecast, valuing Midlands at 440p a share.
But industry sources played down the likelihood of Houston Industries, the rumoured counter-bidder, coming in with a rival offer. Meanwhile, Merrill Lynch, brokers to Cinergy and GPU went into the market, buying 28 million shares in Midlands at 432p and lifting their stake to just over 9 per cent.
Bryan Townsend, chairman of Midlands, pledged that the takeover would not result in job losses and forecast that the alliance with the two US groups would produce a "formidable combination" in the world energy market.
Together the two US utilities supply 3.3 million customers in Ohio, Indiana, Kentucky, New Jersey and Pennsylvania and operate 25,000 megawatts of generating plant. They have combined assets of $18bn (pounds 12bn) and a combined market capitalisation of $8bn.
Avon Energy, the joint company formed by Cinergy and GPU to bid for Midlands, will finance the offer with about $1bn of equity while a further pounds 1.5bn of debt is being raised by its bankers, Chase and BZW.
The offer values Midlands at 14.1 times last year's earnings, making it the second most expensive in the sector and represents a premium of 20 per cent over the bid by PowerGen, which was blocked two weeks ago by the President of the Board of Trade, Ian Lang.
Midlands directors will make pounds 876,000 by cashing in their shares in the company but none of the board stand to make bonanza profits from share options.
PowerGen, which holds a crucial 21 per cent stake in Midlands, said last night that it had not been approached by the US bidders and was sitting tight on the holding, which is currently showing a pounds 70m profit. A spokesman said it had not yet decided whether to sell the stake or to apply for a judicial review of the Lang decision.
Since Mr Lang has cleared two takeovers of regional electricity companies by US utilties - Southern Company's bid for SWEB and Central and South West's acquisition of Seeboard - it would seem unlikely that this latest bid will be blocked.
However, in the wake of market confusion caused by the Government's recent rulings on bids in the power sector, nothing is being taken for granted.
Mr Townsend allayed fears that the takeover would mean more job losses on top of the 1,200 in the last two years that have taken the core workforce down to 4,200. But he conceded that jobs would disappear as Midlands continued to improve its efficiency.
Michael Hughes, who will remain as Midlands chief executive, forecast that the takeover would present opportunities in international markets while helping Midlands prepare for the opening up of the domestic electricity and gas markets in 1998. Cinergy is also a significant player in the gas market with 434,000 gas customers in the US.
Midlands owns about 600MW of capacity in the UK through 25 per cent stakes in Teesside Power and Humber Power and is close to signing deals to build gas-fired stations in Turkey and Pakistan.
Comment, page 19
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