National set for pounds 1.5bn power sale
Saturday 20 April 1996
The deal on the power plants, which would be subject to regulatory approval, would make Hanson the UK's third-largest electricity generator, excluding nuclear. City analysts say the group could overtake PowerGen for the number two slot within a few years.
The disposal, which is expected to take the form of a 10-year leasing arrangement, is being carried out under pressure from the regulator, Professor Stephen Littlechild. Eastern has already agreed to buy generating plants worth pounds 400m from PowerGen, which had also been told by the watchdog to sell capacity. It is likely that the payments will be split into an initial consideration and further instalments related to output from the stations involved.
The agreement with National Power creates within Hanson, which is headed by Lord Hanson, a substantial vertically integrated electricity group with activities spanning power generation, distribution and supply. It comes as the Government prepares to deliver its verdict on vertical integration by deciding whether to allow National Power's proposed bid for Southern Electric of the UK and that by PowerGen for Midlands Electricity.
The power stations involved account for one-fifth of National Power's UK generating capacity. But they account for more than 25 per cent of its UK earnings because they run for 60 per cent or 70 per cent of the time while some plants are run only to meet peak demand. The stations include West Burton in Nottinghamshire, Rugeley in Staffordshire and Ironbridge in Shropshire.
National Power will be left with an estimated market share of just over 20 per cent. Analysts say that Hanson's share could be 14 per cent before long, with PowerGen at a projected 16 per cent or 17 per cent. Nuclear is emerging as an increasingly important player although the industry is being split into two, with British Energy, the company controlling the most modern reactors, due to be privatised later this year.
National Power's plans for the disposal of the power stations are thought to have been delayed by its bid for Southern which, along with PowerGen's acquisition plan, has been under scrutiny by the Monopolies and Mergers Commission for several months. Although ministers have yet to announce the verdict on the MMC report, a controversial leak to the Economist magazine appears to have confirmed that the takeovers will be conditionally approved.
In a sharp rebuffal on Thursday to the approach by Southern Company of the US, National Power reaffirmed its commitment to merging with Southern Electric of the UK. The generator said that there was "no point" in agreeing to talks with the US group, which has not out an offer on the table.
Shares in National Power rose by a further 4p yesterday to 592p, compared with an opening price of 492p. Analysts believe that the US predators will bid at least 700p a share, valuing the company at pounds 8bn.
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