John Baker, National Power's chairman, wrote to Southern yesterday rejecting its request for a meeting, questioning its ability to mount an offer that shareholders would find acceptable and dismissing its rationale for seeking a merger.
National Power sources added that, although Southern had presented its proposals as a "combination" of equals, it was clear that it was a straightforward, old-fashioned takeover.
In his letter to Thomas Boren, president of Southern Electric International, Mr Baker said: "National Power is not now and will not be for sale unless compelling value for our shareholders, compared with what we can realise from our own plans, is put forward in a credible way."
The sudden and marked hardening in National Power's stance pointed to an all-out takeover battle, with the market expecting Southern to open with an offer of at least 650p, valuing the generator at more than pounds 8bn. Should the Atlanta-based utility launch a contested offer then the Government is not expected to use its golden share to block a takeover, leaving it instead to shareholders to decide. However, it could use its power of veto to wring concessions out of Southern to further open up the generating market to competition.
The initial meeting between the two sides on Tuesday night, after Southern's planned approach leaked into the market, had appeared to be at least polite if not amicable.
However, Mr Baker's letter corrected that impression. He said it remained National Power's strategy to acquire the regional UK company Southern Electric, that the US company formed no part of its plans and that nothing had happened to cause it to revise those plans.
Mr Baker also criticised Southern's capital structure, saying: "The Southern Company's market capitalisation equivalent to pounds 9.77bn compared with National Power's pounds 6.56bn and your existing debt make us question your ability to structure an acquisition which offers our shareholders fair value for their company."
The letter went on to say that the logic of combining Sweb, the regional electricity company that Southern bought last year for pounds 1.1bn, was "not nearly as attractive" as National Power's proposed merger with Southern Electric.
If Southern did make an offer, including a price, details of how it would be financed and plans for the business, National Power would consider whether to agree to a meeting.
Southern, although clearly disappointed at National Power's response, is expected to present a formal proposal early next week. It has been eyeing the generator for nearly a year.
The US company owns five electricity suppliers in Georgia, Alabama and Florida and a number of generating plants, including three nuclear stations, and has long-term debts of pounds 5.5bn. Last year it made net profits of $1.1bn (pounds 723m) on turnover of $9.1bn against National Power's pre-tax profit of pounds 705m on sales of pounds 3.95bn.
The Government is expected to announce next week or the week after whether it will allow the takeovers of Southern Electric and Midlands Electricity to go ahead.
The Monopolies and Mergers Commission had been thought to have cleared the two bids with only minimal conditions attached. But City and industry observers believe that the Trade and Industry Secretary, Ian Lang may impose significantly more onerous conditions as the price for allowing the two mergers to proceed.
DTI sources said it could not be assumed that any bid by Southern for National Power would escape referral to the MMC even if the two bids by the generators got clearance.
Mr Lang has stressed repeatedly that he will judge the welter of bids in the electricity sector on a case-by-case basis.
Southern does not appear to be interested in taking over both National Power and Southern Electric. In any event such a move would increase markedly the prospects of a referral.Reuse content