National Power rebuffs Atlanta with raised bid

National Power yesterday raised the stakes in its battle to fend off a hostile bid from Southern Company of the US by raising its offer for the regional UK power company Southern Electric by about 10 per cent to pounds 2.5bn.

The increased offer came as a Government announcement on whether to allow through this merger and PowerGen's bid for Midlands Electricity was believed to be imminent.

Ian Lang, Secretary of State for Trade and Industry, is expected to announce his decision this week, possibly in the next 48 hours, signalling what could be a rash of vertical integration across the electricity industry.

Southern Company refused to add to its statement last week that it was considering a "combination" with National Power but would await the Government's ruling on the two generators' bids before announcing terms.

However, a spokesman in Atlanta, Georgia, said that the statement "still stands". Other sources have suggested that Southern Company may pull out and look elsewhere following National Power's pounds 1.7bn sale of three power stations to Hanson first week and yesterday's raised offer for Southern.

National Power's increased offer for Southern Electric is conditional on the merger being approved on terms and conditions which are satisfactory. It is offering pounds 9.60 cash a share and is allowing Southern Electric shareholders to retain a second interim dividend of 26.3p in effect raising the value of the offer to pounds 9. 86.3p. The initial bid last October was worth pounds 10.10 a share but since then Southern Electric has sold its stakes in the National Grid and the pumped storage power station business First Hydro and undertaken a share consolidation.

On a like-for-like basis, the bid is worth about pounds 11 compared with last October's offer. Shares in National Power rose 13p to 605p while Southern Electric shot up 32p to 891p.

The American camp immediately attacked the revised offer, arguing that it valued Southern on a higher earnings multiple than any of the other regional electricity companies taken over so far.

Analysts estimated that the bid valued Southern Electric at 14 times earnings compared with the 11 times earnings that Southern Compny paid for Sweb last year and the 13.6 times that another US utility, Central and South West of Texas, paid for Seeboard - the highest bid in the sector so far.

However, National Power hit back arguing that the power station disposal to Hanson and the Southern Electric bid, if successful, would lead to "very significant earnings accretion", giving it scope to raise dividends.

Analysts estimate that the two deals could enhance earnings by between 20 and 30 per cent.

National Power added that neither it nor Southern Electric, believed the approach by the US company changed the "compelling logic supporting an immediate implementation of their proposed strategic unification".

Comment, page 19

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