Robert Ferguson, North West's finance director, confirmed at the weekend that the extra cash available from the second part of a "trombone" rights issue was an implicit threat to its competitors. "We hope they'll read it as a signal that we're determined to win this," he said.
The flip side of the equation is that Norweb's management could look on the bulging war chest as an admission that North West thinks the firm is worth more than the current bid. Norweb shareholders did not seem convinced, however, and the stock ended the week at 1,008p, compared with the cash-and-shares bid price of 1,022p.
The attempt to scare off rivals follows widespread rumours that Norweb is being eyed up by American utilities. Wall Street analysts said that interest in the UK electricity sector was high following the successful takeover of Sweb by Southern Electric International of Atlanta, Georgia, for pounds 1.1bn last month.
Potential bidders include Cali-fornia-based Pacific Gas and Electric, Florida Power & Light and two Texan utilities, Houston Industries and Central and Southwest. When Norweb rejected the water company's offer on Friday it said only that it was continuing talks with a number of unidentified parties.
North West's threat is backed by an unusual and acclaimed type of rights issue last seen during British Aerospace's failed assault on submarine builder VSEL. The trombone issue, designed and underwritten by Kleinwort Benson, the merchant bank, allows the amount of money raised from shareholders to slide upwards according to the water utility's needs.
Investors are being called upon to put up pounds 140m immediately, and commit themselves to an additional pounds 427m if required. City analysts said any increased bid would be likely to involve raising the cash and paper offer, while the all-cash alternative remained little changed from its current level of 975p per share.
The only divergence from the BAe issue is that North West is promising to return the first pounds 140m to shareholders "in an appropriate manner" if the bid does not go through.
A refund seems unlikely, however, as most City analysts think the bid will eventually succeed. The price is higher than those offered in the four previous take-over assaults on regional electricity companies. One electricity analyst said it was "extremely generous"
The possibility of an auction was played down by observers who noted that interested companies still have eight RECs to choose from. And industry insiders said the management of Norweb, which stands to share pounds 2m on share options, is not opposed to the offer in principle but is merely haggling over price.
Sir Desmond Pitcher, North West's chairman, said United Utilities, as the merged companies would be called, would be a "flagship company". It would have 2.8 million water customers and 1.9 million electricity subscribers in the North-west, making it a powerhouse in the region.
Possibly the biggest threat to the deal is political, with MPs on both sides calling for the takeover to be blocked. The Prime Minister, John Major, is expected to call for a report from Ian Lang, President of the Board of Trade.
Water and electricity regulators are treating the offer as an ordinary bid and were working over the weekend to prepare a consultation document.Reuse content