Takeover to bring pounds 4m in options

The directors of Eastern Electricity will make pounds 4m before tax from share options, assuming the takeover by Hanson goes ahead, writes Mary Fagan. Chief beneficiaries are John Devaney, chief executive, who will make about pounds 1.2m, and the chairman, James Smith, who will make about pounds 1m.

Many of the 6,000 employees in the group also stand to gain from the takeover. The potential profit on options in the company's Sharesave Scheme is about pounds 50m before tax. More than half the options awarded under the scheme are at an exercise price of pounds 1.75, compared with the offer price of pounds 9.75.

The smallest gain among the executive directors is about pounds 250,000 - to be made by Eric Anstee, finance director, who joined in January last year. The directors also hold shares in Eastern worth almost pounds 300,000 in total at the offer price.

Mr Devaney has been an outspoken defender of the concept of share options during the recent controversy over executive pay. He recently said that although Eastern decided to grant none last year, he felt the City would regret driving companies away from share option schemes within a few years "when they realise that management's agenda is no longer the City's". Share option schemes helped focus minds and in their absence something else would fill the gap.

Mr Devaney, who was paid pounds 377,000 last year including pension contributions, will become chairman of Eastern if the bid goes ahead.

He said he could not comment on what he may be paid in his proposed new role.

It is understood that, with the exception of Mr Smith, who was in any case due to retire in November, the management team will remain the same.

The issue of gains for executives is increasingly under the spotlight as bid frenzy in the electricity sector builds. Last week, Scottish Power said it had allowed pounds 20m in its pounds 1bn bid for Manweb to cover the cost of options and that most would go to staff with options under the savings- related scheme. The option price in the employee scheme is 175p, compared with the cash alternative of 915p.

Manweb's executive directors will make more than pounds 800,000 from exercising options at the level of the cash offer. Taken with their existing beneficial shareholdings in the company, the total potential gain rises to about pounds 2m.

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