PowerGen MD quits on post-merger job dispute

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The Independent Online
POWERGEN lost one of its top executives yesterday after a boardroom disagreement over how the group would be run following its pounds 1.9bn takeover of East Midlands Electricity and planned merger with the US utility Houston Industries.

Deryk King, managing director, quit after being told that he would not get the job of chief executive following yesterday's agreed purchase of East Midlands from the US power group Dominion Resources. Mr King was paid pounds 326,000 last year and is thought to have negotiated a pay-off worth around pounds 400,000.

Ed Wallis, chairman and chief executive, said he was confident the deal would not be blocked by regulators as PowerGen had offered to dispose of 2,000 megawatts of generating capacity in return for being allowed to own a regional electricity company.

As a further indication of its confidence that clearance will be given, PowerGen said the purchase of East Midlands was conditional only on the approval of its own shareholders. This will be sought at an extraordinary meeting on 22 July.

PowerGen was blocked from buying neighbouring Midlands Electricity two years ago because of fears that it would distort competition.

But Mr Wallis said he had already spoken to the electricity regulator, Professor Stephen Littlechild, and foresaw no insurmountable obstacles this time. "There are no hurdles that cannot be overcome. We do not believe regulatory issues will stand in the way of this deal being done," he said.

East Midlands, which was bought by Dominion in 1996 for a total price including debt of pounds 1.7bn, is the country's third-biggest Rec with 2.3 million domestic customers. PowerGen is the third-biggest generator, with 14,000 megawatts, and the biggest supplier in the industrial and commercial market with a 16 per cent share.

Mr Wallis forecast that the combination of the two businesses would create a powerful new force in electricity supply, increasing competition when the domestic market is thrown open from September.

The combined group will have sales of pounds 4.1bn and pre-tax profits of pounds 623m, and is expected to produce savings of at least pounds 30m a year through the combination of supply and marketing arms. Mr Wallis predicted there would be few job losses, if any.

PowerGen has received 10 approaches from companies interested in taking over its coal-fired generating capacity. The station most likely to be sold is the 2,000-megawatt Ferrybridge plant in Yorkshire which could fetch up to pounds 500m.

The East Midlands takeover received the support of the City, where PowerGen shares rose 7p to close at 857p. But unions were split on the deal. The Electricity Supply Trade Union Council, representing the Engineers and Managers Association, the AEEU, TGWU and GMB welcomed the PowerGen takeover, which returns East Midlands to UK ownership. But the public service union, Unison, voiced concern over job losses and said it would be seeking an early meeting with PowerGen. "The proposed merger is bad news for jobs in an area already decimated by job cuts since privatisation," said Unison's deputy head of Energy, Sol Mead.

Mr Wallis said East Midlands would give a platform for further expansion of PowerGen's UK activities and held out the prospect of more takeovers of supply and distribution businesses from other Recs.

But PowerGen's next priority is to seal the pounds 10bn transatlantic merger with Houston Industries. The intention is to create a group with dual stock market listings in London and New York. Mr Wallis said the first task was to resolve how the combined group would be run and who would do what. "That can be quite difficult in a merger of equals," he added.

PowerGen aims to complete the deal for East Midlands by September but wants to unveil a Houston merger before that - possibly within four weeks.

Outlook, page 19