US utilities set to bid pounds 1.7bn for Midlands

Two US utilities are set to launch an agreed pounds 1.7bn bid for Midlands Electricity today, rekindling takeover fever in the power industry.

The US bid from General Public Utilities of New Jersey and the Cincinatti- based Cinergy is expected to be pitched at around 430p a share.

There was speculation last night, however, that a third US power group - Houston Industries - could yet mount a counter-offer provoking an all- out bid battle for Midlands.

PowerGen, whose pounds 1.95bn bid for Midlands was blocked two weeks ago by Ian Lang, the President of the Board of Trade, could be pivotal to the outcome.

The generator has a 21 per cent stake in Midlands acquired at the time of its original offer last September. The holding is showing a pounds 57m profit but could net PowerGen as much as pounds 100m if a contested bid battle develops.

Separately PowerGen is expected to decide in the next two days whether to apply for a judicial review of Mr Lang's decision to block its bid.

One option for PowerGen is to sell its Midlands stake to the highest bidder but still opt for a judicial review.

One source said: "We want to understand why Mr Lang reached the decision he did, what the ground rules are for the future and at what stage there will be sufficient competition in generation to allow us to buy a regional electricity company."

Mr Lang ignored the advice of the Monopolies and Mergers Commission by blocking the Midlands deal and National Power's pounds 2.5bn bid for Southern Electric arguing they would have created unacceptable vertical integration of electricity generation and supply.

GPU, the latest suitor for Midlands, is capitalised at $3.8bn and owns three electricity suppliers in the eastern US - Jersey Central Power and Light, Metropolitan Edison and Pennsylvania Electric. It has a turnover of just under $4bn and made after-tax profits of $352m last year.

Houston Industries bid unsuccessfully for Norweb, the electricity supplier for North-west England, last year, but it is known to have been watching developments since then quite closely and remains keen to buy a Rec. The company is valued at $5.5bn and generates and supplies electricity to more than 1.5 million customers on the Gulf Coast of Texas, making it the ninth-largest US electricity utility.

If the latest bid for Midlands succeeds it will be the third British electricity supplier to be acquired by a bidder from the United States.

The Southern Company of Atlanta Georgia bought South Western Electricity for pounds 1.1bn last year and Central and South West, also of Texas, bought Seeboard for pounds 1.6bn.