Takeover talks between South Western Electricity and The Southern Company, one of the largest utilities in the US, have collapsed, fuelling speculation that the American giant will mount a hostile bid.
No formal offer was made, but Sweb said that Southern had suggested an offer at pounds 9 per share, valuing the company at about pounds 1bn.
Southern acquired 11.2 per cent of Sweb in a dawn raid on Monday, paying pounds 9 ex-dividend. Maurice Warren, Sweb's chairman, said: "The valuation is totally unrealistic. The vast majority of our shareholders rejected that on Monday and we as a board could not support it." The US group said it was considering its position and it regretted Sweb's decision not to continue the talks.
Mr Warren said Sweb was well prepared to defend its position in the face of attack but added: "We are willing to listen to a properly valued approach." City analysts believe Southern could win Sweb with an offer of 950p. The company's shares rose by 29p yesterday to close at 939p.
The expectation is that Sweb will follow the lead of Northern Electric, which offered a pounds 500m package of sweeteners to shareholders in defence of a bid earlier this year by Trafalgar House. But Sweb is unlikely to match Northern's generosity in the light of the latest clampdown on electricity distribution prices by the regulator, Offer. The company has already bought back 10 per cent of its shares and has said it will seek permission to buy up to a further 15 per cent.
Sweb is expected to attract a white knight from among the other regional electricity firms. Southern Electric of the UK is known to have looked at its smaller neighbour and has also stated its willingness for a merger within the industry.
Southern Electric already has a link with the US predator's global arm, coincidentally called Southern Electric International, to bid for power plants owned by National Power and PowerGen.
However the UK company stresses that it has no involvement in the move by the US group to buy Sweb.Reuse content