National Power takeover fever grips market

Takeover fever gripped the electricity sector last night amid speculation that National Power, the largest generator, is being targeted for a pounds 7bn-plus bid. Ordinary shares in the company soared by 27p to 517p and the partly paid by 30p to 387p, boosting the company's market worth by pounds 466m to pounds 7.3bn.

City analysts speculated that US utilities, including Southern Company, could be potential predators. A bid for National Power would require the approval of the Government, which retains a golden share in the company. Agreement by ministers to a takeover, particularly by a foreign group, would almost certainly cause a political furore. It is just over a year since the Government sold its last stakes in National Power and PowerGen for pounds 4bn.

A team from SBC Warburg, the merchant bank which last year advised Southern on its pounds 1.1bn bid for Sweb, was last night locked in meetings and unable to comment. Some City analysts said that National Power, headed by John Baker, would be too big a target for Southern on its own but there was also speculation over a potential joint takeover. Some analysts think Southern Electric would be willing to dispose of some of National Power's generators over and above that planned by the company itself.

Within the industry the speculative talk yesterday focused on the arrangement of a rumoured $12bn (pounds 8bn) loan facility by banks including Barclays de Zoete Wedd and SBC Warburg.

Other names mentioned amid the bid fever included Houston Industries, Pacific Gas and Electric and Mission Energy of the US. One analyst said potential European predators could include Spain's Endesa and Electricite de France. "We are seeing the sort of smoke that we rarely see in this industry without fire. The reason National Power's name has not been in the frame before is simply its size," he added.

The bid flames were fanned earlier in the day following reports that Southern Company of the US was close to selling a large stake in South Western Electricity with a view to making further investments.

Bill Dahlberg, Southern's chairman, said it had no intention of losing control at Sweb, which it bought for pounds 1.1bn last year. But he said it would be "advantageous" to sell a minority interest "to regain some of our financial investment and then reinvest that on other quality companies like Sweb".

Mr Dahlberg did not comment on the generation business, although Southern is thought to have been keen at one time to buy power plants being sold by National Power under pressure from the regulator, Professor Stephen Littlechild. Mr Dahlberg added that he did not envisage buying another UK regional electricity firm "at this point".

National Power declined to comment on the rumours. A spokesman for Southern Company refused to respond to speculation that it might bid for a British company following disposal of the Sweb stake. There was talk in the City earlier that Southern may seek to acquire South West Water, which faces potential rival bids by Severn Trent Water and Wessex Water.

Mr Dahlberg had said he saw "an opportunity coming in pretty quickly to bring in water business in a country outside the US".

The rumours emerged at a sensitive time for National Power, which is awaiting the Government's response to a Monopolies and Mergers Commission report on its proposed takeover of Southern Electric of the UK. Ministers were outraged at the end of last week following the leak of the MMC report on the National Power takeover. The Economist magazine reported that the MMC had recommended that the Government approve National Power's takeover of Southern and that of Midlands Electricity by PowerGen.

Separately, Utilicorp of the US said it would buy out the remaining 25 per cent of its UK subsidiary, which has gas marketing joint ventures with several regional electricity firms. The stake, thought to be worth about pounds 15m, was owned by a company called Norland Gas whose directors included Sir Ian MacGregor.

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