The talks, which centred on an all-share, no-premium merger, were terminated on Monday night after the two companies agreed a deal would not be in shareholders' interests.
There was speculation last night that the two companies would now turn their sights on other merger partners. But rumours also swirled that National Power may be contemplating a hostile bid for United Utilities.
Keith Henry, chief executive of National Power, is understood to have approached his opposite number at United Utilities, Derek Green, with a merger proposal just before Christmas. Subsequent talks reached an advanced stage.
National Power, which is valued at pounds 6.3bn, would have been the dominant partner in the merged company with 60 per cent of the shares. At last night's closing price of 812p, up 9p, United Utilities is valued at pounds 4.7bn.
There is said to have been no dispute over management roles in the combined company. But it appears that United Utilities felt that a no-premium merger would have short-changed its shareholders.
United Utilities said that, as part of a broad review of strategy, it had held discussions with National Power about the potential benefits of a merger. These had reached a "detailed stage" before Monday night's termination of talks.
By contrast, National Power's statement referred merely to "conversations" that had been held held with United about a possible merger.
City observers said the tone of the two statements suggested that United was the keener of the two to flush out a bidder, even though the initial approach came from National Power.
The rival generator, PowerGen, has already merged with East Midlands Electricity and has made no secret of its interest in buying a second regional electricity company if permitted.
National Power meanwhile has taken over the supply arm of Midlands Electricity.
Both generators are in the process of selling off coal-fired power stations in return for being allowed to expand into electricity distribution and supply. National Power expects to raise pounds 2bn from the sale of its Drax station in Yorkshire while PowerGen expects to net pounds 1.5bn from the sale of its Ferrybridge and Fiddler's Ferry stations.
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