The bid was cleared on Monday by Michael Heseltine, President of the Board of Trade, despite the view of Professor Stephen Littlechild, director- general of Offer, that it should be referred. Professor Littlechild is concerned about his ability to regulate electricity companies if they are absorbed by larger groups. A separate quotation for Northern would help to alleviate those concerns.
Offer is already in discussions with Trafalgar on undertakings to ensure that the powers of the regulator are not diminished - which is a condition of the approval by Mr Heseltine. Professor Littlechild is expected to put forward the necessary amendments to Northern's licence within the next few weeks and should they not be agreed he could use his powers under the Electricity Act to refer the matter to the MMC. Such a move would have implications for the industry, which is expecting a wave of bids following Mr Heseltine's green light.
A spokeswoman for Offer confirmed that the 25 per cent flotation was one of the issues on the table. She added that an MMC reference was a possibility "if things fall apart".
The approval of the bid by Mr Heseltine caused outrage in the Labour Party and in some consumer groups. Yesterday in the House of Commons, Jack Cunningham, shadow trade and industry secretary, asked why Mr Heseltine failed to take questions on the bid, and why he rejected Offer's advice.
Mr Cunningham also asked for clarification on the activities of Swiss Bank Corporation, Trafalgar's advisers on the bid, which has also bought shares in Northern Electric and Yorkshire Electricity. "Is it true that the Securities and Futures Authority and the Securities and Investment Board are raising important questions about insider dealing?" he asked.
Separately, at an extraordinary general meeting, Northern Electric shareholders voted overwhelmingly to remove the restriction preventing any single shareholder from owning 15 per cent or more of the shares.
David Morris, Northern's chairman, said that the "gloves will be off" on Friday when the company launches its final defence against the bid. Northern is expected to announce a substantial special dividend to shareholders and may also offer a rebate for customers.
Northern's shares edged up yesterday to £10.93, having risen 116p to £10.91 on Tuesday. This compares with Trafalgar's cash alternative of £10.48.