Northern says 630p a share is too low

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The Independent Online
A slanging match broke out last night between Northern Electric and CE Electric, the US consortium which has tabled a hostile pounds 759m offer, over the value of the last takeover bid for the company.

CE Electric, jointly owned by the Nebraskan-based CalEnergy and American construction group Kiewit, said its 630p-a- share offer compared with an effective offer of 633p in 1995 from Trafalgar House.

However, Northern hit back, saying the true value of Trafalgar's final offer had been 732p and urged shareholders to reject the bid.

In the offer document, posted yesterday, CE Electric urges Northern shareholders to accept the bid, warning that Northern faces an uncertain future from 1998 and the possibility of an pounds 81m windfall tax demand.

Its chairman, David Sokol, also says in a letter to Northern shareholders that the payouts Northern produced to fend off Trafalgar had significantly reduced its ability to pay additional special dividends in the face of a tougher regulatory environment.

But David Morris, the Northern chairman, responded by saying that CE Electric was trying to buy the business on the cheap. He said that accepting the offer would deprive shareholders of a second special dividend of 56.5p payable next February and the interim dividend, which analysts reckon will be about 13p.

He said: "Northern Electric will make a series of important announcements which will build a compelling picture of the value which has been created since we were last subject to a hostile offer as well as the value of the business going forward."

CE Electric's 633p valuation of the earlier offer is based on taking Trafalgar's original offer of pounds 11 a share and then deducting the gross value of the distributions Northern has made to shareholders and then adjusting for its subsequent 23-for-26 share consolidation.

Northern says that the benefit of a tax credit on special dividend distributions does not result in a corresponding fall in the value of the company paying those dividends because it is the taxpayer, not the distributing company, that bears the cost of the tax credit.

On that basis, the implied bid price, if CE Electric were to match what Trafalgar offered, would be 99p higher.

Northern held talks with CE Electric prior to the launch of the bid and said an offer had been discussed at around a price of 700p a share. CE Electric denies this.