US bid for Energy Group gets go-ahead
Saturday 20 December 1997
Margaret Beckett, President of the Board of Trade, had overruled the advice of the Office of Fair Trading and Professor Stephen Littlechild, the electricity regulator, when she launched the surprise MMC investigation in August. The takeover bid would see Eastern Electricity, part of Energy Group which demerged from Hanson earlier this year, become the eighth regional electricity company (Rec) to fall into US hands.
Releasing the report yesterday, the Department of Trade and Industry revealed that the MMC had found Professor Littlechild's existing powers were sufficient to prevent PacifiCorp from milking Eastern's funds to service a $6bn debt burden after the merger.
It was the second time this week that the MMC had endorsed the recommendations of the regulators, despite Mrs Beckett's additional concerns. On Tuesday she approved the takeover of ScotRail and Central Trains by National Express, after the MMC proposed identical conditions to those suggested before the referral by John Bridgeman, director general of fair trading.
The MMC went further in the PacifiCorp case, arguing that the deal could not be expected to operate against the public interest at the outset. Under competition law, Mrs Beckett can only seek to impose extra conditions on a merger if the MMC rules that it would be against the public interest.
John Devaney, chief executive of Eastern Group, said Professor Littlechild must feel "somewhat vindicated" by the MMC report. Energy Group is thought to have spent about pounds 3m on the investigation, while the MMC said its inquiries generally cost between pounds 174,000 and pounds 480,000.
"Unconditional clearance is pretty conclusive. Clearly we're very pleased at the outcome. We were very frustrated at the time it took to get back to where we started," added Mr Devaney.
A senior source at Offer said the report was "a helpful endorsement of steps" the regulator had already taken. Offer, the power watchdog, had proposed extra licence conditions, beyond other US takeovers of Recs, to maintain Eastern's investment grade credit rating and ensure that the Rec's finances would not be hit if PacifiCorp breached its own borrowing covenants.
However DTI sources said they were "rather pleased" with the report and insisted the MMC probe had not been a wasted exercise, given the panel's concern about PacifiCorp's debt burden if the merger went ahead. They said the report had also provided a helpful source for the DTI's review of utility regulation, which is not now expected to emerge until late January at the earliest.
Shares in Energy Group rose 10p to 665p yesterday, still well short of the 690p price of the original bid, as analysts speculated about PacifiCorp's intentions. The agreed pounds 3.7bn offer lapsed with the MMC referral.
Michael Harrison, page 23
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