Trafalgar bid for Northern lapses

Electricity company rejects bidder's proposal to come back with `undervalued' offer of £9.50
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The Independent Online
BY MARY FAGAN

Industrial Correspondent

Trafalgar House ended a week of turmoil in the electricity industry by lapsing its £11-a-share bid for Northern Electric after the slump in Northern's share price to little more than £8.

Northern rejected a proposal by Trafalgar to come back with an offer of £9.50, which is possible only with the agreement of the Northern Electric board. The company said that in spite of the present uncertainty in the electricity industry, a cash offer of £9.50 would "seriously undervalue" the company.

This week's bizarre train of events was triggered on Tuesday by a threat from Professor Stephen Littlechild, director general of Offer, that he might toughen the price controls on the 12 regional electricity companies, having agreed them only last August.

The statement wiped about £3.5bn from the value of the industry within hours and resulted in Northern Electric recommending on Tuesday afternoon the £1.23bn bid at £11 per share.

Trafalgar House said last night that it believed any Northern shareholders would welcome a £9.50 bid. A spokesman said: "We were deluged this week with calls from Northern Electric shareholders asking us not to let them down and not to lapse the bid. It was a steady stream of approaches saying, `please help'."

Trafalgar had received acceptances in respect of at least 71 per cent of Northern's shares by the deadline yesterday, even though it had already said it planned to lapse the bid.

Trafalgar's brokers, UBS Philips and Drew and Cazenove, are now hoping to muster enough support from shareholders to change the minds of Northern's board on a renewed bid. However, one industry source said: "That's the end of that. It's dead at least until June when Professor Littlechild finally announces the results of any price review."

Trafalgar House said that it has not asked for any dispensation from the Takeover Panel in mounting a new bid. The company met the Panel on Thursday to clarify that it needed Northern's consent for a new bid, even if the board did not recommend it. Trafalgar cannot come back with a hostile bid for a year.

It is now unclear what will happen to Northern Electric's proposal of £530m in sweeteners to shareholders to persuade them to reject the bid. The company said that the proposals were not legally binding but that it would attempt to pursue them as far as possible.

The company's situation has been changed by Professor Littlechild's statement. In any case, half of the £5.07 per share offer is linked to a successful sale of the National Grid Company, in which Northern has a stake. The grid sale also seems more uncertain because of the regulatory fears about the industry.

Professor Littlechild braved the wrath of the investment community yesterday when he attended a meeting in the City to explain his about-turn on pricing. The meeting - billed by some as "feeding Daniel to the lions" - turned out to be a rather muted event. One analyst said: "It was very disappointing. There was no blood, no eggs, nothing." However, he added that Professor Littlechild would appear to be planning a full-scale review of electricity distribution prices rather than the quick fix that some regional companies were hoping more.

The reverberations also continued over the Government's £4bn sale of shares in National Power and PowerGen which went ahead in spite of the Treasury's knowledge that Professor Littlechild might make his statement. Dealings in partly- paid shares began on Monday and fell below the offer price in the aftermath of Professor Littlechild's statement.The Stock Exchange is reviewing the circumstances of the sale.

National Power's partly-paid shares rallied to close up 7.5p at 173.5p, above the 170p paid by private investors but below the 180p institutional price. Partly-paid PowerGen shares rose 9p to 185.5p again above the price paid by the UK public but below the price to other investors.

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