Barclays Capital pulls funding for rival Hyder bid

Barclays Capital has withdrawn partial funding of a rival bid for Hyder, the Welsh water and electricity group, throwing the offer into confusion and prompting allegations of dirty tricks.

Western Power Distribution's attempt to top an existing £402m agreed bid for Hyder from Nomura, the Japanese investment bank, also appeared to run into political opposition.

Rhodri Morgan, the First Secretary of Wales, said: "It is essential that Hyder's headquarters remain in Wales and that existing jobs are protected."

Analysts believe that WPD's plan, announced at the weekend, would involve greater job losses than Nomura's proposal, and that WPD would run a much slimmed-down headquarters. WPD is only interested in acquiring Hyder's electricity business. It had planned to sell off the Hyder water interests to a not-for-profit vehicle, which would outsource the running of those water operations to United Utilities. A pre-condition of the offer was that Barclays Capital would fund the acquisition of the water business by the not-for-profit vehicle. But Barclays yesterday said it would not be providing this funding, claiming that there had been a misunderstanding.

There were suggestions in the WPD camp that Nomura had pressured Barclays to withdraw, citing the amount of business the two banks did together.

A source said that Barclays had approved the wording of Sunday's bid announcement. "Barclays had been happy to work on this [bid] for quite some time. But something clearly happened between Sunday and Tuesday," he said.

A spokesman for WPD insisted that this was not the end of its bid. "This [withdrawal by Barclays] is a hiccup, not a problem. We are conducting a beauty parade of other funders and another party will be in place in the next few days. There's no shortage of others willing to provide the money."

He said that the formal bid was still on schedule to be made over the next 10 days. Hyder said that it was seeking further clarification of WPD's interest.

Nomura has already bought 15 per cent of Hyder in the market. But after WPD's announcement that it would better Nomura's 260p offer, Hyder shares jumped 33.5p to close yesterday at 283.5p. WPD is expected to pitch its bid at 285p a share.

Andrew Shepherd-Barron, an analyst at ABN Amro, said the WPD plan to split the ownership and running of the water assets was ground-breaking. "Nobody has done that in the water industry. But the plan will have regulatory issues."

Nomura believes that the water regulator might seek to block the WPD plan, as it would reduce the number of comparators among water operators in Britain.