Power industry in turmoil as bid gets go-ahead
Wednesday 15 February 1995
Michael Heseltine, President of the Board of Trade, decided not to ask for an inquiry by the Monopolies and Mergers Commission in spite of advice from Professor Stephen Littlechild, the director-general of electricity supply, that the bid should be referred.
Mr Heseltine said he acted on the advice of the Office of Fair Trading and was seeking assurances from Trafalgar House that would alleviate Professor Littlechild's concerns over future regulation of the industry.
Mr Heseltine's move drew sharp attacks from Labour and from the National Consumer Council. Jack Cunningham, shadow secretary for trade and industry, said the decision not to refer the bid was "extraordinary and deeply unsatisfactory".
"Mr Heseltine's failure to intervene has left the door wide open to further bids for regional electricity companies without regard for the public interest," he said. Although the consensus was that no referral could be made on competition grounds, there was a widely held view that there might be an investigation in the interests of the public.
The NCC attacked the decision as "deeply disappointing" and lacking in common sense. Robin Simpson, head of policy at the NCC, said that the bid should be referred because it was the first takeover in the sector and because Trafalgar House was not a public utility service.
"This takeover sets a precedent and demands strenuous screening. Given that the electricity companies are already cash-rich it is hard to see what is in it for consumers. There must be cast-iron guarantees to ensure that domestic consumers do not end up subsidising the Trafalgar House side of the business," he said.
Trafalgar House has given undertakings to Mr Heseltine that, should the bid succeed, the core electricity business will have the management and financial resources it needs.
The group has also promised that Professor Littlechild will be given all the information he needs to carry out his regulatory role and that Northern will be given "appropriate financial separation and financial independence".
Because the undertakings are not legally enforceable, there will be related changes to Northern's licence that are enforceable. Professor Littlechild met Trafalgar House yesterday to discuss the matter but has not said what the change will be.
City analysts predicted an upside of up to 25 per cent for shares in the industry. The consensus is that the next most likely takeover targets include smaller regional companies including SWEB, which operates in the South-west, South Wales Electricity, Manweb and Seeboard. The other obvious candidate is Yorkshire Electricity, in which Swiss Bank Corporation has an 8.5 per cent stake.
SBC, which is advising Trafalgar on the bid for Northern Electric, has consistently told Yorkshire that it holds its stake as a market-maker. SBC also holds about 5 per cent of Northern, again as a market-maker.
Yorkshire declined to comment on the situation. Its shares rose to 884p from an opening price of 811p. Shares in Northern closed up 116p at £10.91p, compared with the Trafalgar cash offer of £10.48.
There has been speculation that Hanson is poised to bid for Yorkshire or another regional electricity firm. Other potential predators are rumoured to include Electricite de France, the French utility, and large global energy firms.
Trafalgar's bid for Northern is expected to pass another hurdle today when Northern's shareholders vote on whether to remove the ceiling that stops a single shareholder from holding 15 per cent or more of the company.
Comment, page 33
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