YOUR MONEY: Stay on board, ready to jump

As bids for utilities multiply, what should small shareholders do? Steve Lodge advises some pointers for investors
NATIONAL Power is offering pounds 2.8bn for Southern Electric. PowerGen is bidding nearly pounds 2bn for Midlands Electricity. North West Water wants Norweb. Scottish Power has successfully pursued Manweb. South Western Electricity and Eastern Group have already sold out ... the whirl of deals and potential deals goes on. What are the millions of individuals who have held these shares since privatisation to make of it all?

At the very least the deals should serve to remind investors what a fabulous investment privatisations have been. Some electricity companies, for example, have quadrupled in price in less than five years.

And for people wanting income from their investments, current privatisation dividends in many cases amount to more than 10 per cent of the flotation price.

Here then are some pointers to getting the most out of the takeovers.

o Another company wanting to buy your shares is almost certainly good news financially. Bids are normally above the current market price. Meanwhile the prospect of a big buyer pushes prices up.

o The flipside of this is that the price of the acquiring company's shares may fall on the announcement that it is bidding for another. "And you tend to find its share price goes to sleep after the deal," says Gareth Hayward, managing director of stockbrokers Waters Lunniss.

o Don't expect every company to be taken over. Size matters. The bigger privatised companies are less likely targets simply because there are fewer companies that could afford them.

o Equally, though, more bids are expected among electricity and water companies. Simply selling your shares in the stock market now may mean you miss out. "If you're a holder, run [your profits]. We appear to be in the middle of the game," says Paul Killik of London stockbrokers Killik & Co.

o Bids involve plenty of paper sent out to shareholders and huge dollops of jargon. Don't worry. You don't have to respond to it immediately, or at all. If you do accept an offer and a higher one comes along afterwards, investors will normally find they still get the benefit of the higher one.

o If you're a shareholder in the company doing the bidding you don't have to do anything.

o Accept a deal if it goes what is termed "unconditional".That means the acquiring company has got hold of 50 per cent of the shares (or acceptances of the offer) and has control of the company. The takeover offer is probably the best value you're going to get and saves on stockbroking charges for selling in the stock market.

o The offer's worth depends on your tax position. For example, deals that involve special dividends can leave higher-rate taxpayers "clobbered", says Mr Killik. And if the offer is cash for your shares, consider whether your profits would make you liable to capital gains tax.

o If in doubt about any aspect of a deal, take advice from a stockbroker.

o If the acquiring company doesn't get the required 50 per cent, the deal doesn't go through. But there's a good chance the offer will have forced the target company to come up with some new benefits for shareholders.

o Equally, don't get upset if your best investment has been taken off your hands. The current takeover fever has driven up many prices to all- time highs. And in most cases investors have almost certainly seen the best of the strong returns from privatisation shares.

Negatives now include the prospect of windfall taxes and other regulatory and political fears. "What started as medium-to-low-risk investments are now medium-to-high," says Matthew Orr, partner at Killik & Co. Also, the stock market itself is close to its all-time high. And the simple fact is that most privatisation investors hold shares in these companies and little else. Those investors are disproportionately exposed to any future price falls. So being able to sell shares at current bid prices without paying stockbroking dealing charges could prove a very convenient exit route.

PRIVATISATION PROFITS

Company Date Issue Current floated price price*

National Power Mar 91 175p 489p

PowerGen Mar 91 175p 543p

Northern Ireland Electricity June 93 220p 449p

Southern Electricity Dec 90 240p 964p

Yorkshire Electricity Dec 90 240p 916p

Midlands Electricity Dec 90 240p 964p

Eastern Electricity Dec 90 240p 973p

London Electricity Dec 90 240p 911p

East Midlands Electricity Dec 90 240p 902p

South Wales Electricity Dec 90 240p 932p

South Western Electricity Dec 90 240p 900p

Scottish Power June 91 240p 350p

Scottish Hydro Electric June 91 240p 335p

Northern Electric Dec 90 240p 776p

Norweb Dec 90 240p 1086p

Manweb Dec 90 240p 991p

Seeboard Dec 90 240p 503p

South West Water Dec 89 240p 534p

Severn Trent Water Dec 89 240p 655p

Thames Water Dec 89 240p 548p

Southern Water Dec 89 240p 712p

Welsh Water Dec 89 240p 771p

Yorkshire Water Dec 89 240p 654p

North West Water Dec 89 240p 594p

Anglian Water Dec 89 240p 589p

Wessex Water Dec 89 240p 346p

Northumbrian Water Dec 89 240p 1019p

British Airways Feb 87 125p 471p

British Steel Dec 88 125p 181p

British Telecom Dec 84 130p 399p

British Gas Dec 86 135p 265p

* Closing price 4 October. Source: Barclays Stockbrokers

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