North West stuns rival with raised bid for Rec

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The Independent Online

Industrial Correspondent

Norweb, the regional electricity company, succumbed to attack from North West Water after a renewed pounds 1.83bn offer yesterday

The size of the offer surprised the City and was met with a resounding silence from North West's rival bidder, Texas Energy Partners, which is now expected to turn its attention to another electricity target.

The revised offer values each Norweb share at pounds 11.70 with a cash alternative of pounds 11.50, compared with Texas Energy's latest cash offer of pounds 10.85. For Norweb shareholders, who can reclaim tax on the special dividend element of the price, North West's offer is worth up to 1,207.5p per share.

The price per share is regarded as extremely high against Hanson's agreed bid for Eastern Electricity at pounds 9.75, and the pounds 10.10 per share tabled by National Power in its proposed friendly takeover of Southern Electric.

Shares in North West Water, which built its stake in Norweb to 25 per cent yesterday, fell by 22p to 573p. One City analyst said: ''This is very, very overpriced. The shareholders I am talking to are not happy."

There is a view that North West's determination to win Norweb is driven by the desire of the company's chairman, Sir Desmond Pitcher, to build a regional super-utility in the north west of England. But Brian Staples, North West's chief executive, flatly rejected the suggestion that his company has gone too far. He said the takeover would still be earnings enhancing in the first full year and that interest cover and the gearing of the enlarged group would remain "prudent''.

He went on: "I can tell you that North West's board have determined a position which we would never go beyond. The multi-utility created through the merger of North West Water and Norweb, with their substantially overlapping customer bases, will be uniquely placed to deliver efficiency savings, which will bring benefits to both customers and shareholders."

There is concern in the City about the regulatory and political risks facing the enlarged group, which would fall under the scrutiny of Offer and Ofwat, and be subject to two price control regimes. One analyst also stressed the potential problems of integrating the two businesses, and the fact that the water group has no experience in the electricity sector.

Ofwat, the water industry regulator, has already warned that it needs to be convinced that the takeover will not compromise North West's ability to fund its core water and sewage operations. Ofwat and Offer have prepared a joint submission on the proposed bid for the Office of Fair Trading, which will advise the Government on whether the bid should be referred to the Monopolies and Mergers Commission.

The revised offer coincided with a renewed call by the Labour Party for the entire industry to be referred to the MMC in the light of the surge of bids for regional firms.

The board of Norweb said it had ''no reason to expect Texas Energy Partners will revise its current offer ... and intends to recommend shareholders to accept the further increased offer from North West".