Power chiefs look at pounds 2m bonanza

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The Independent Online
THE directors of Midlands Electricity stand to receive more than pounds 2m if a takeover by PowerGen is agreed, as expected, at 975p a share this week.

The windfall will come from shares the directors own - unlike directors at other privatised utilities that have been taken over, they have no share options left to cash in. Despite that, the hefty profits for the managers could influence the Government's decision on whether to refer a deal for Midlands to the Monopolies and Mergers Commission. An increase in the pounds 2bn price would only make the political outcry louder.

Industry observers think PowerGen will probably be forced to raise its offer if it wants to get an agreed deal and avoid the bad publicity of a protracted hostile takeover. Talks between Kleinwort Benson and Goldman Sachs, the two financial advisers involved, were continuing at the weekend, but a Midlands spokesman said its directors had gone home for the weekend.

PowerGen's hand is limited by the fact that it needs Midlands far more than the regional electricity company needs it. The generating market is already much more crowded than it was five years ago, and full competition for supply is less than three years away.

On top of that, the Government has ordered PowerGen to sell off 2,000MW of its capacity. And consolidation among the RECs will make them tough- er negotiators.

Against an MMC referral, PowerGen can muster two arguments. The first is the precedent of Scottish Power's approved bid for Manweb. The difference is that Scottish sells only a little electricity into England, almost all of it through the spot market, but PowerGen sells most of its output to the RECs on fixed contracts.

The second is the still-unannounced deal to sell two power stations to Eastern Electricity. This proposal could also be referred. The Government could easily argue that its intention in forcing PowerGen to sell was to move the capacity to a third party, not an existing player.

Midlands is the sixth of the 12 RECs to come into play since the Government withdrew its golden shares last year. With each new assault, public concern has grown.