Regulator set to OK Trafalgar's bid for Northern
Wednesday 18 January 1995
His views will carry considerable weight with the Office of Fair Trading, which is to advise the Government on whether to refer the bid to the Monopolies and Mergers Commission.
City analysts continue to believe, however, that there is a strong chance the Government will make a reference on political grounds. The bid for Northern is likely to be the first of a series of takeover and merger attempts once the Government's golden share in the regional electricity companies expires at the end of March.
Professor Littlechild, director general of Offer, the regulatory body, is believed to see no reason for the bid to be referred to the MMC on competition grounds. The Consumers Association has also said that the bid poses no threat to consumers, as along as the ability of Offer is not compromised in any way.
Professor Littlechild is also believed to have decided against using his own powers to refer the bid under Northern's electricity licence.
Northern Electric, headed by David Morris, has argued that there should be a reference in the public interest. The company said that, as the first regional electricity company to be the target of a bid, it believes the time has come for some guidelines on the takeover of utilities.
In particular it questions the powers of the regulator to ring-fence the business in the interests of consumers after Trafalgar has taken over. It also believes criteria should be introduced to establish whether bidders are "fit and proper" owners of regional electricity companies.
Northern has attacked Trafalgar for having a "lamentable" track record on standards of service. But Trafalgar's chief executive, Nigel Rich, claims that it is committed to the future of the core electricity operation, saying that it is "keen for the business to thrive".
Yesterday Trafalgar confirmed its willingness to pass to Northern shareholders who accept its offer the value of the National Grid Company, in which Northern has a 6.5 per cent stake and which is expected to be floated separately later this year. Shareholders can opt to take a mixture of cash and paper, including bonds, dubbed Grids, which can later be exchanged for shares in the grid company should the planned £5bn flotation go ahead. The bonds will be listed in Luxembourg.
Trafalgar has also said it will give customers a £20 rebate. The company said that this was in addition to any Government-imposed rebate for all electricity customers, which is expected if the flotation of the National Grid Company proceeds.
Northern, which must issue its defence document by Monday, reiterated its view that the £1.2bn offer for the company is "derisory" and urged shareholders to be wary of the Grids element.
A spokesman for Northern, which has said it will demerge its NGC stake to shareholders in the event of a flotation, added: "These Grids are not what they seem and are inferior to our own proposals. Shareholders would be well advised to wait for our detailed analysis of the Grids in future defence documents."
Meanwhile, it is expected that the Stock Exchange will complete its inquiry today into share option contracts entered into by Trafalgar House and its advisers Swiss Bank Corporation. The contracts caused controversy because they allowed Trafalgar House to cover millions of pounds of bid costs by benefiting from movement in electricity share prices, including those of Northern Electric. The Exchange has said that it may decide to change the rules concerning such contracts.
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