Welsh Water throws hat in the ring for Swalec

Power play: The pounds 14bn takeover bid frenzy over the electricity companies shifts to Wales
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Industrial Correspondent

The pounds 14bn bid frenzy in the electricity sector was thrust back into the limelight yesterday with a statement by Welsh Water that it may bid for South Wales Electricity. The move comes five years after the water company first swooped on its neighbour, taking its stake to 15 per cent before ultimately selling out.

In a terse statement made on the request of the Takeover Panel, the water group said: "The board of Welsh Water has been examining the case for making a takeover offer for South Wales Electricity." The company said that "in current circumstances" it envisaged any offer being around yesterday's mid-morning price of pounds 10.20 per share, which would value Swalec at almost pounds 1bn. The statement made clear that at that price it would include the value of Swalec's stake in the National Grid Company, which is due to be floated on the stock market next month.

Shares in Swalec soared by 70p to pounds 10.58, adding to the strong gains earlier in the week. The company, which is advised by NM Rothschild, said: "Pending clarification of Welsh Water's possible intentions, Swalec has no further comment to make and advises shareholders to take no action."

A source at Welsh Water said: "We have been convinced of the synergies of such a takeover much longer than anyone else has been. It is encouraging that others, albeit somewhat later, are coming to the same conclusions." But one City analyst said Welsh would have to pay more like pounds 11 a share to win the electricity firm and said he did not really expect a bid to materialise.

"I do not see Welsh Water winning this. They are smaller than Swalec and even at pounds 10.20 they would be financially stretched - I cannot see shareholders being happy with this," he added.

Welsh Water's renewed interest follows government clearance at the end of last week for North West Water's pounds 1.8bn takeover of Norweb. On Tuesday, Ian Lang, President of the Board of Trade, also gave the green light to a potential bid for Northumbrian Water by Lyonnaise des Eaux of France.

The relationship between the two Welsh firms has never recovered from Welsh Water's surprise raid on Swalec in December 1990 - immediately after the electricity firm was privatised - when it scooped up about 9 per cent of the shares. Swalec resisted any overtures from the water company but the stake was increased to almost 15 per cent in June 1991 and Welsh Water held on to the shares until December 1992, selling at a substantial profit.

There have since been senior management changes at both groups and in recent months the map of the electricity industry has been rapidly redrawn. But the widespread view is that there is still little love lost between the two companies.

Some analysts argue that much of the potential cost savings between the water and electricity operations could be achieved by co-operation without the risks of a merger. So far, Welsh Water and Swalec have no collaborations. Swalec has entered into a joint development on customer billing systems with South Western Electricity, now owned by Southern Electric International of the US.

Takeover fever was further fuelled by rumours of fresh interest from Houston Industries, which was earlier thwarted in attempts to buy Norweb.

There was speculation that Houston might be out for a bid battle with Central and South West Corporation of the US, its former partner in the Norweb bid, which has mounted a takeover of Seeboard. CSW is expected to announce today it already owns 27 per cent of Seeboard.

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