Power bid shock
National Power may join the race for London Electricity
Sunday 27 September 1998
The US company is selling London Electricity because its entry into the UK did not pay off as well as it expected, sources close to the New Orleans- based company said.
National Power has repeatedly said it does not want to get into the business of distributing electricity over wires. So it would probably buy London Electricity to gain control over the power supply business, analysts say. The power supply business encompasses the actual marketing of electricity and commercial arrangements with customers.
David Campbell, an analyst at Greig Middleton said that to buy London Electricity would be a major change of direction if National Power didn't sell the distribution business. Mr Campbell said the company could be intending to hive off the distribution business to a financial buyer like Nomura or to another power company. Earlier this year Nomura considered buying the distribution business owned by Energy Group, before the company was sold to Texas Utilities for pounds 6.3bn.
National Power has received a copy of the London Electricity sale prospectus from Morgan Stanley Dean Witter, the bank handling the sale, sources said. A spokesman for National Power said: "Our policy has always been that we would like to get into supply - and we are considering all the options." But he wouldn't comment on whether the company is considering a bid or has received documentation.
National Power has been facing pressure from the Government and the electricity industry regulator to sell some of its coal-fired power stations in order to make the generation market more competitive. It has called the demands unjustified, arguing that the market has become progressively more competitive since National Power and the number two generator, PowerGen, were privatised in 1990. Last week PowerGen agreed to sell 4,000 megawatts of its coal- fired capacity in return for being allowed to keep its pounds 1.9bn acquisition of East Midlands Electricity, the UK's third largest electricity supplier.
National Power would have to sell at least as much generating capacity if it bought London Electricity, analysts say. Until now the company has focused on building up its business overseas, while accepting that its UK generation busi ness would lose market share.
The introduction of gas-fired power stations, which have taken the place of coal-fired stations, has resulted in a decline in National Power's market share from 46 per cent to about 20 per cent. Since 1991 the number of generating companies in the UK has grown from three to 30.
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