Midlands ups ante

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The Independent Online
MIDLANDS Electricity is demanding that PowerGen raises its bid for the firm by more than pounds 100m as the price of a fresh seal of approval if, as expected, the Government gives the green light to the takeover of the regional electricity company.

The Monopolies and Mergers Commission report into the bid, and National Power's pounds 2.8bn takeover of Southern Electric, was delivered to Ian Lang, the President of the Board of Trade, nine days ago. An announcement is due shortly.

Shares in the four other remaining independent RECs leapt last week on expectations that a clearance will spark a final bid frenzy in the sector before a general election.

East Midlands, London and Yorkshire Electricity are all expected to be targets, while Midlands and Southern may also attract rival bids. Debt- burdened Northern Electric, the only REC to survive a bid, is thought less attractive, but rumours have linked it to Scottish Hydro, the only generator not to join the fray.

Midlands shares now trade at 388p, valuing it at pounds 1.49bn. Comparisons with PowerGen's original pounds 1.95bn, pounds 10-per-share offer are complicated by a share split, 100p special dividend and distribution of shares in National Grid announced by Midlands in December.

But adjusting for this, its original offer now stands at just 366p per Midlands share, almost pounds 100m less than the firm is valued at. Southern meanwhile, at 875p, is trading at a discount to the 884p equivalent value of the National Power bid.

"If they're cleared, they will have to restart the bid at a higher price than they offered before. It'll be a start from scratch," a Midlands spokesman said.

Talks will recommence once the MMC decision is known, but other factors are likely to come into play. PowerGen offered 13 times Midlands' historic earnings per share when it bid last September; applying that formula to analysts' estimates of 40p of earnings for the year to 31 March just gone gives a price of 520p - pounds 500m more than Midlands' current worth.

This weekend PowerGen, whose chief executive is Ed Wallis, rebuffed Midlands' stance. "Any talk of a fresh offer is premature before the outcome of the MMC enquiry is known," a spokesman said.

The conditions the MMC is set to demand include sale of Midlands generation plant - and Southern Electric's - and transparency in contract pricing. Restrictions on how much of PowerGen's output that goes to Midlands and guarantees on the REC's purchases from rivals are also likely, with similar conditions for National Power and Southern.

Midlands has since been approached by other suitors, including General Public Utilities of the US and Belgium's Tractabel, but any rival would have to overcome PowerGen's 21 per cent stake in the REC.

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