Northern lures its shareholders

Northern Electric has come out fighting with a package for shareholders of £5.07 per share in a last-ditch attempt to fend off the £12bn hostile bid by Trafalgar House. The company has also forecast an increase of 16 per cent in pre-tax profits to £150m this year, as well as a 33 per cent increase in the dividend to 33p and earnings per share up at least 21 per cent to 97p.

The £5.07 includes a special dividend of £1.50 to be paid before the end of April, and an irredeemable preference share worth at least £1 on issue with an underwritten cash alternative of £1. The balance is the value of Northern's shares in the National Grid Company, which it has promised to distribute to shareholders, and a special dividend which is expected to be paid prior to the planned flotation of the grid.

The value of the package is about £500 for the average small shareholder, of which Northern has 110,000. The company is also projecting expected increases of 13 per cent in the ordinary dividend in the years ending March 1996 and 1997.

David Morris, chairman, said the measures show that Trafalgar's bid "seriously undervalues" Northern Electric's shares. He said that the Trafalgar cash alternative of £10.48 places a value on Northern's shares of only £5.41 once the package being offered to shareholders is implemented. Northern's shares closed up 21p at £11.12.

Mr Morris told shareholders: "You would be giving up significant value by accepting the Trafalgar House offer. A continuing investment in Northern Electric would be worth significantly more to you."

The measures proposed by Northern Electric would leave the company with debt gearing of 225 per cent by March 1996, which is unprecedented among UK utilities and compares with Northern's cash-positive position last September. The company said that its plans would be funded through bank borrowings and that gearing would fall to 100 per cent by March 2000.

Mr Morris said he is "comfortable" with the level of gearing. "This is a secure business with a predictable revenue stream. The gearing certainly is not crazy because it's bankable and entirely manageable."

He added that Northern would bring down its borrowings through a variety of measures, including tight cost control. The company has already said it will cut 520 jobs this year and 200 in each of the two following years. It also intends to rein back on capital expenditure on non-core businesses.

City analysts said the defence shows the strengths of the regional electricity firms and added that the other 11 companies in the sector would be under pressure to produce similar measures to increase shareholder value. Nigel Hawkins, an analyst with Hoare Govett, said: "The question is, do the other companies do something now or do they wait until a predator comes along?"

Trafalgar House, which has until next Friday to increase its offer, said that Northern's proposals would leave "a rump burdened with an alarming level of new debt and expensive preference shares."

Nigel Rich, chief executive, said: "That is not a defence, that is an argument for Northern Electric shareholders to accept the Trafalgar House offer or sell their shares while they still have the chance at these prices."

Although the bid has been given the go-ahead by Michael Heseltine, president of the board of trade, it could yet be referred to the Monopolies and Mergers Commission by Professor Stephen Littlechild, director general of electricity supply, who is concerned about his ability to regulate in the event of a takeover.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?