US pair shrug off windfall threat with pounds 1.5bn Yorkshire bid
Tuesday 25 February 1997
The offer leaves Southern Electric as the last of 12 privatised regional electricity companies (RECs) neither taken over nor facing a bid. If the two US companies, AEP of Ohio and Public Service Colorado from Denver, gain control of Yorkshire, it will leave a total of seven RECs in American hands. The others are: Northern; Sweb; London; East Midlands; Midlands; and Seeboard.
Embarrassment at the latest foreign takeover approach spilled over into the Commons yesterday, with Michael Heseltine, Deputy Prime Minister, calling on other countries to allow outside bids for their utilities. He said he was "constantly urging the US and other countries to have open economies".
The Government is also likely to be on the defensive over the two bidders' reaction to Labour's proposed windfall tax. Linn Draper, AEP's chairman, said the US companies had examined various assumptions for the cost of the tax and had concluded they could afford it. He explained: "We wouldn't have made a bid if we didn't have a good example of the size." The comments were welcomed by John Battle, Labour's energy spokesman: "This just goes to show it's not the problem the Tories make it out to be."
The windfall tax bill would come on top of a possible pounds 30m which Yorkshire said it may be forced to pay back to its pensions scheme following a recent landmark ruling against National Grid by the Pensions Ombudsman.
Shares in both Yorkshire and Southern surged on yesterday's bid news. AEP and PS Colorado are jointly offering 927p a share for Yorkshire, 13.3 per cent above Friday's closing price of 818.5p. Yorkshire shares rose to 882p, a rise of just 7 per cent, reflecting some uncertainty over whether the bid would be referred to the Monopolies and Mergers Commission. Southern Electric gained 23.5p to 770p.
Christopher Hampson, Yorkshire's non-executive chairman said the offer was "very full and fair". He continued: "We held out for a good price. We didn't accept the price that they offered at first ... it was a hell of a lot less than they're offering now."
Analysts dampened speculation of a rival bidder appearing with a higher offer.
Sources close to PowerGen, the privatised generator, played down the possibility that it would bid for Yorkshire. PowerGen was blocked by the Government from buying Midlands Electricity last year but is thought to have been examining another bid for a REC should Labour win the next election.
The two US utilities said this was the first time they had made a joint bid, but had been eyeing UK utilities for several months. AEP and PS Colorado have a combined market value of $10.3bn (pounds 6.2bn) and supply 4 million customers. They said 25 per cent of the pounds 1.5bn purchase price for Yorkshire would be financed by equity with the rest from debt.
They hinted yesterday at a more aggressive approach towards the UK gas and electricity markets after domestic competition takes hold next year.
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