ScottishPower finally won the day after tabling an unusual two-tier offer that effectively priced its southern rival out of the developing auction. Topping Southern Electric's recent 975p offer, the Scottish company made a final bid of 1,050p but retained the right to increase its offer to 1,100p if Southern or any other party returned with a higher offer.
Southern Electric indicated early in the day that it believed ScottishPower was overpaying for the south coast water company. Henry Casley, chief executive, said: "We are not prepared to overpay. Our offer was a full and fair price and most reasonable people will assume that, with a customer overlap, we can produce more savings than Scottish."
Attention focused on Southern Electric's future as an independent company following its repeated failure to expand its activities over the past two years. Having agreed to a takeover by National Power earlier this year, only to see that deal blocked by the Government, it is widely expected to be the subject of another takeover bid as the electricity industry continues to consolidate.
ScottishPower insisted that the takeover would result in immediate and substantial enhancement of earnings per share and an increase in the rate of dividend growth. Murray Stuart, chairman, said: "We are a builder of businesses and have a clearly focused strategy. Our highly successful integration of Manweb proves that our management team has the expertise to reduce costs, improve efficiency and grow revenues."
ScottishPower promised there would be no compulsory redundancies at Southern Water, as there had not been following last year's hostile takeover of Manweb, the north-west regional electricity supplier, but it insisted that the deal offered substantial cost savings.
It has already announced planned cost cuts of about pounds 63m from the Manweb deal and, while the savings are likely to be more modest at Southern, analysts expect reductions of between pounds 40m and pounds 45m.
Any takeover still has to receive regulatory clearance from the Office of Fair Trading but a referral is thought unlikely. The deal would not appear to compromise competition in the Southern region and there would not seem to be concerns about ScottishPower's financial strength following the deal and, therefore, about its ability to meet its obligations to customers.
Following the acquisition, which is to be part funded by a rights issue to raise pounds 589m, ScottishPower will have gearing of 125 per cent, a figure which is expected to fall subsequently. Interest cover is considered safe at more than four times.
The move is ScottishPower's latest step in a rapid expansion both geographically and into other utility areas, where it leads the field in the creation of so-called multi-utilities. It now has interests spanning electricity, gas, telecoms and water and has created toeholds in northern and southern England as well as its Scottish heartland.
The move comes ahead of a radical opening up of Britain's gas and electricity markets in 1998 when, for the first time, 23 million residential electricity customers and 19 million gas users will be able to choose their supplier.
The terms of the deal will see Southern Water shareholders receiving 1,028.2p in cash plus a 21.8p dividend from the water company, representing a premium of more than 50 per cent to Southern's price before ScottishPower made its first offer on 28 May.
There is a share alternative whereby Southern shareholders can take 1.23 ScottishPower shares plus 681p in cash - that offer was worth 1,064.8p at ScottishPower's closing price of 312p last night, up 1p.
Southern Electric shares jumped 28p to 702p as investors breathed a sigh of relief that the company had resisted the temptation of overpaying simply to keep ScottishPower out of its home patch. Southern Water shares jumped 26p to 1,013p.
The early withdrawal of Southern from the fight put an end to a bid battle that was showing signs yesterday of taking an acrimonious turn.Reuse content