Sweb's capitulation stokes the uncertainty


Uncertainty was written all over the electricity sector yesterday. Sweb's capitulation before the 965p-a-share bid from Southern Electric International of the US has set a benchmark value amidst the flurry of takeover activity. But shares across the sector lifted their heads rather nervously in response to the news, as investors wait to see which way the Department of Trade and Industry will jump on the matter of referral.

Given the absence of friends prepared to come to Sweb's rescue, the American usurper's price looks reasonably generous. SEI's UK namesake, Southern Electric, was rumoured to have offered Sweb a fair bit more during its ephemeral appearance as a white knight. But it then rode away rather smartly. The three bids now on the electricity sector board show a remarkable degree of convergence. Taking in the tax advantages many investors will get, the effective value of the offer for Sweb amounts to 981p. Hanson's agreed offer for Eastern Electric is pitched at 975p, while Scottish Power's hostile bid for Manweb, measured by the cash and shares option, is currently valued at 976p.

But the light shed by the settling of the offer prices into a relatively narrow corridor has not spread much clarity elsewhere. The relative reserve demonstrated by electricity share prices yesterday amounted to a plea for guidance on several fronts from a sector raring to move up another gear into acquisition overdrive. This makes it harder for the DTI to get away with just shrugging its shoulders over referral to the MMC. On paper, there is little to object to in SEI's takeover of Sweb. As an outsider moving in, it amounts to no more than a change of ownership. Hanson already has precedent in its favour. Having given the nod to Trafalgar House's abortive bid for Northern Electric, it will be harder for the DTI, even under the new stewardship of Ian Lang, to put up its hand to Hanson. But matters become cloudy once Scottish Power's bid for Manweb is entered into the equation. Stephen Littlechild, the regulator, wants it referred to the MMC to clarify the takeover rules for the other runners and riders in the sector waiting to emerge. The view prevails that if the DTI feels obliged to refer one, it will opt to refer them all. But Scottish Power's bid to extend its dominion within the electricity sector raises more than straightforward takeover questions. The matter of vertical integration between generators and distributors in England and Wales, which were separated at the time of privatisation, will need to be clarified sooner or later. If Scottish Power can buy a distribution company, why not National Power and PowerGen?

Pressure is building up within companies to evolve from being mere cash- rich distributors of electricity into becoming integrated energy retailers, offering gas and electricity, and owning power stations. British Gas has already applied for a licence to supply electricity in 1998. It may well be the case that privately the Government is prepared to let market shake- out decide the shape of tomorrow's electricity sector. But some guidance now would not go amiss.

Time for building societies to talk money

With the glint of steel now clearly visible in the distance, it is no surprise that many building societies are casting round for ways to avoid the takeover axe. Some of the big names have no doubt already privately decided that conversion to plc status is inevitable. But there are others, like Bradford & Bingley, which seem determined to fight for their mutual status. Loyalty bonuses for building society customers have been gently mooted for some time. But only now has the seriousness of the societies' predicament made them attractive

No doubt others will follow B&B's bonus scheme gambit. It has been painted as just another way of absorbing excess capital, akin to Barclays' recent share buy-back. But this is disingenuous. Ever since Abbey National succeeded in winning over National & Provincial members with a cash-in-hand pledge, building societies know they have to do more than just polish their nicer- than-the-banks image. They have to talk money.

Spurred on by the regulators, keen to see the virtues of mutuality brought home to the public, the B&B is proposing that borrowers who have held a pounds 60,000 mortgage for five years or more could expect a bonus of around pounds 800 every five years. Savers with more than pounds 10,000 invested could expect a similar amount if they have held the account for 10 years or more.

The key question is whether customers will be prepared to resist tempting pay-outs today offered by bank predators, and instead wait patiently for loyalty bonuses over the horizon. Experience suggests this to be unlikely. Could the bonus scheme, however, be developed into a "poison pill" strategy to deter unwanted bankers? Building societies are calculating whether they could give away enough capital in the form of payouts, and then load the balance sheet with debt through the bond market to make a predator think thrice. But this may not work either. Banks want to buy mortgage assets and customer bases, and care less about the remainder of the balance sheet. It looks as though building societies may be trying it on too late.

A low interest rate era in prospect

Low inflation has not commanded the support in Britain that it does in Germany. We have not lived through two hyper-inflations that decimated savings. Our folk-memories are of Jarrow marches rather than wheelbarrows of worthless paper money.

But low interest rates: that's an altogether different proposition. Burnt by the experience of double-digit interest rates in the 1980s and early 1990s, few people are ready to believe in an era of low interest rates. Yet this may be the prospect in store.

The turnaround in interest rate expectations this year has startled even the City professionals who are supposed to be the masters of this guessing game. At the beginning of 1995, the City anticipated interest rates of 9 per cent by the end of the year.

Now the current level of 6.75 per cent is increasingly looking like the peak. The Bank of England is apparently preparing the ground for a retreat from its demand for another increase, while Kenneth Clarke has won his gamble to resist Eddie George's demand for higher rates. There are, of course, still voices calling for an increase, but as the new, more optimistic consensus on interest rates filters through to the public, it is bound to have a positive effect on the economy.

The housing market, where fears of a repetition of the doubling in rates at the end of the 1980s are still acute, should be a particular beneficiary.

Such a fillip is just what the doctor ordered given concerns about a gathering economic slowdown. But in the longer term, there may be a more significant dividend. If people make an equation between low interest rates and low inflation, then the transition to a low-inflation economy will be made a lot easier.

Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
premier league
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
people'I hated him during those times'
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Dame Vivienne Westwood has been raging pretty much all of her life
peopleMemoir extracts show iconic designer 'felt pressured' into going out with Sex Pistols manager
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
fashionAlexander Fury's Spring/Summer 2015 London Fashion Week roundup
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late on stage in Brixton show
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
people''Women's rights is too often synonymous with man-hating'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam