SFA to give verdict in electricity shares row

The Securities and Future Authority is expected to announce today the results of an inquiry into controversial share option contracts entered into by Trafalgar House and Swiss Bank, Trafalgar's adviser on its £1.2bn hostile bid for Northern Elect ric.

The contracts allowed Trafalgar to benefit from movements in the share price of Northern and other regional electricity companies. The SFA has been examining the transaction, including the question of Chinese walls.

Northern Electric yesterday said that the Takeover Panel had stalled its appeal over the clearance by the panel of the share option contracts. In an unusual move the panel said an appeal would not be appropriate until inquiries by other regulatory bodieshad been concluded.

Last month the Stock Exchange exonerated Swiss Bank but said that the rules concerning such contracts might need to be changed. There has also been speculation that the Department of Trade and Industry is looking at use of the contracts.

Northern Electric said yesterday that it remained concerned about the use of the share option contracts and about separate purchases of Northern shares by Swiss Bank as a market-maker. The company believes that the actions are in breach of the Takeover Code and wants to appeal to the full Takeover Panel on that basis.

Separately, Trafalgar House has made its own appeal to the panel against Northern Electric's allegations in a defence document that Trafalgar had been unable to reassure shareholders in the 1994 accounts over its financial position.

Trafalgar House executives were incensed by the implication that it might not be viable as a going concern. The group said new guidance on "going concern" had only just been issued, hence the omission in the annual report.

A source close to Northern Electric said yesterday: "We were not trying to create the impression that the company was insolvent." However, it is believed that Trafalgar, increasingly angered by the war of words, will not let the matter drop easily.

The fresh acrimony between the companies emerged as they awaited a decision by Michael Heseltine, President of the Board of Trade, on whether the bid should be referred to the Monopolies and Mergers Commission.

A statement by Mr Heseltine was expected yesterday but may not be made until next week. Mr Heseltine is addressing business leaders today in the North-east, where Northern distributes and supplies electricity. He will not visit the company.

Although there are no grounds to refer the bid on competition grounds, there is a view that it will be sent to the MMC for political reasons. Northern is the first regional electricity company to be targeted for a takeover and more are likely to follow when the Government's golden share in the 12 companies expires at the end of March.

Northern is due to issue its final defence document at the end of next week.