Northern confirms REC talks to thwart US suitor
Wednesday 11 December 1996
The Newcastle-on-Tyne based group said it would raise next year's dividend by 17 per cent to 50p and by 7 per cent a year thereafter until the next regulatory review in the year 2000. The dividend policy would not be derailed by a windfall tax imposed by a Labour government of up to pounds 81m, it said.
David Morris, the Northern chairman, refused to identify its partner in the talks, which have been going on for the past year, but said it "may well" not be nearby Northern's operations. Cost savings of pounds 28m a year are forecast by the time the joint venture is fully operational in the year 2000, for an outlay of around pounds 25m.
"We felt and believe there is an upside in operating on a joint basis," Mr Morris said. "It will bring cost advantages and we think branding advantages. We shall in addition have alliances with other parties, almost certainly new entrants to this market." As well as United Friendly, the insurance group which recently announced an innovative personal equity plan linked to bills, he said other groups such as retailers and possibly even a newspaper may be involved in the partnership.
Suggestions by analysts and industry sources that Norweb, the electricity arm of United Utilities, may be the other REC involved, were discounted by sources close to the talks. The company made no comment yesterday. London Electricity, which was also non-committal, was suggested as another candidate, having recently moved its telephone and billing operations to Sunderland.
Northern is claiming the support of the Prudential, which has a 13 per cent stake, after the insurance group said the bid offered an insufficient premium for control. Northern's shares rose 6p to 611.5p, still well short of the 650p a share bid from CE Electric, the CalEnergy and Peter Kiewit bid vehicle. Many analysts are expecting the bid to be referred to the Monopolies and Mergers Commission in the next few days and East Midlands Electricity said it would postpone Monday's scheduled results announcement until the Government makes up its mind.
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