Southern Electric favourite for bid from National Power

Electricity directors meet behind closed doors as identity of NP's target utility remains unclear
Click to follow

Business Editor

National Power is this weekend poised to make an agreed bid for a regional electricity company. An emergency board meeting has been scheduled for tomorrow, and the company's lawyers have been on stand-by.

Speculation centred last night on Southern Electric which late in the afternoon was forced by a sharp rise in its share price to announce that it was in discussions with a third party that might lead to a recommended offer, likely to be at least pounds 2.5bn. Southern refused to identify the bidder and its directors were closeted in meetings with advisers.

National Power, the bigger of the two privatised generators in England and Wales, is thought to have been talking to Southern as well as Yorkshire, and possibly London - whose shares also surged, by 33p to 865p as bid speculation went through the markets. Southern's shares rose 61p to 897p, valuing the company at pounds 2.4bn, suggesting an agreed bid will be worth more than pounds 2.5bn.

Another rumoured candidate in the City was PacifiCorp, the Oregon utility that has just backed away from acting as a white knight for ManWeb in its fight against a bid from Scottish Power.

In the past, Southern has discussed a merger with other Recs. It considered making a white-knight bid for South Western, when it was fighting the successful offer by the quite separate Southern Electric International of the US. But Southern of the UK backed out.

National Power is known to have changed its mind about whether to bid for a Rec after its rival generator PowerGen agreed a pounds 1.95bn offer for Midlands Electricity. In the summer National Power dismissed the idea of buying a Rec, but PowerGen's move has created severe pressures on others to follow suit, and the company is understood to have slated October in for a final decision.

One risk of delay is that the Government may decide to call in the Monopolies and Mergers Commission if too many more bids emerge for Recs in the next few months, even though it has resisted calls for a reference so far.

Neither PowerGen's bid for Midlands nor North West Water's bid for Norweb have yet obtained clearance.

PowerGen argued that only by buying a Rec could it have access to the billing and marketing systems required to serve large numbers of domestic customers after 1998, when new suppliers will be allowed to compete with Recs.

The share rise in Southern's shares is almost certain to lead to inquiries by the Stock Exchange into the unusual price movement which forced the statement. Turnover of 1.2 million shares is likely to understate the volume because of a large number of late trades unlikely to be announced until Monday morning.

Meanwhile, Manweb looked increasingly likely to fall to the hostile bid from Scottish Power, following PacifiCorp's decision not to bid. The balance tipped against a bid after North West Water raised its bid for Norweb to more than pounds 1.7bn to fend off a rival offer from Houston Industries and Central and South West Corporation of the US, which said they were still considering whether to bid again.

Scottish Power bought 2.3 million Manweb shares to take its stake to 19.4 per cent, while North West Water's stake in Norweb rose to 11.7 per cent.