Northern share purchase an unusual move

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The Independent Online
We are not down to the last of the Mohicans quite yet, but with just two surviving braves from an original tribe of 12 regional electricity companies, we're not far off. The agreed bid by Entergy of the US for London Electricity will leave just Yorkshire and Southern as independently quoted stock market companies, assuming that Northern's fight for continued independence fails. Notwithstanding a spirited defence from Northern, supported by some loyal followers, it's still hard to see how our friends from the North can survive.

Extinction, then. Does this matter? Ian Lang, President of the Board of Trade, plainly takes the view that it does not, for the moment he sanctioned the first US bid for a regional electricity company, it was obvious what was going to happen. One after the other, they would all be taken over. It is always possible Mr Lang didn't anticipate quite how far the process would go, but he's a fool if he didn't. Utilities the world over are predictable lemming-like creatures. The moment anyone does anything remotely new, the others just have to follow.

Whatever the case, there's not much Mr Lang can do about it now. It ought to be pointed out, however, that what's happened, though perfectly consistent with the principles of free markets, is not what the Government originally intended. One of the policy objectives of electricity privatisation was to create 12 independently quoted companies, and expand direct share ownership within the electorate in the process. There is no reason to believe that American stewardship of our electricity industry will be any worse than the regime now passing into history, but it isn't what the Government wanted when these companies were floated on the stock market.

C'est la vie. Meanwhile back to Northern and its plucky and somewhat adventurous defence against CE Electric of the US. Its advisers, BZW and Schroders, snapped up 2.3 per cent of the stock yesterday, paying just a whisker under the bidder's price for the shares. This is a highly unusual thing in a takeover bid, for the potential downside for the shares should the bid fail is quite substantial. Were these firms buying as principal, or on behalf of investment clients? If the latter it is a pretty bizarre thing to have done. A quick back-of-the-envelope calculation suggests BZW and Schroders could incur losses of pounds 2m on these purchases should the bid fail. This is surely devotion beyond the call of duty. But then again, perhaps not.

In the bad old days of the City - pre-Guinness - these purchases would simply have been indemnified and nobody would have been any the wiser. But that kind of thing doesn't happen any longer. Not that Schroders and BZW have to, anyway.

Their success fee, should the bid fail, will probably cover the loss. And there would also be all those additional fees to come from fighting the next bid to land on Northern's doorstep. What Schroders and BZW are doing is well within the rules, but if they were acting as principal here, they plainly have a commercial interest that goes well beyond that of ordinary Northern shareholders. And if it were investment clients? It is hard to see what interest they would have in buying at these levels. Either way, the advisers have some explaining to do.

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