PowerGen to sue on shares claim

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The Independent Online

PowerGen is to sue the Observer newspaper for defamation over allegations that six of its directors cashed in pounds 3.5m worth of share options last year, at a time when they were aware of a secret five- year forecast of deteriorating profits.

As a political storm broke over what Gordon Brown, the Shadow Chancellor, said was the "worst example yet of share option practice", the privatised electricity generator went on the offensive.

A spokesman said that the forecast was one of numerous scenarios prepared by its planning department and "certainly was not the one that was settled on". It was a projection of what would happen to PowerGen's profits if the management failed to manage and if the company experienced the worst possible decline in its share of the electricity market.

The company backed its claims by producing figures to show that its actual performance since the options were cashed in 14 months ago has been matching or exceeding City expectations, and it suggested that this was likely to be the case for three of the following five years.

The profits for 1993-94, published after the options were cashed, were in line with the City analysts' predictions. Those for the year just ended were pounds 545m against pounds 490m predicted by the City a year ago.

Investment analysts have been raising their forecasts for the current year to about pounds 544m, a spokesman said, and Sir Colin Southgate, PowerGen's chairman, encouraged this view by saying he was confident it would be another satisfactory year.

The company also made clear that if its expectations of the 1996-97 financial year were substantially different from current City forecasts of a pounds 600m profit, then it would have had to say so in a prospectus published earlier this year when the Government sold its remaining stake in the company.

PowerGen described the allegations as a malicious smear and Sir Colin said "the market had all relevant information at the time the options were exercised".

As PowerGen fought back, directors of privatised companies were urged to show "self-control" by the chairman of the Tory Party. Clearly dismayed by a further example of "fat cat" profits in the privatised utilities, Jeremy Hanley appealed to company executives to enter "some self-denying ordinances" until the CBI committee under Sir Richard Greenbury has reported to the Prime Minister.

It is due to report next month on new rules for executive salaries, including requiring boards to approve big pay-outs from executive share options.

Mr Hanley rejected a call by Gordon Brown for a moratorium on the sale of all executive share options pending an independent inquiry, but Mr Hanley said: "What we need is more self-control from the board rooms of these companies.

The Serious Fraud Office said it would be considering an inquiry as part of its routine response to reports. The Tory Party chairman underlined the irritation of the Prime Minister by admitting that the action of the PowerGen directors in cashing in their share options had further damaged the reputation of the Government's privatisation programme, which has British Rail and nuclear power in the pipeline.

Calling for an independent inquiry, Mr Brown said: "There should be a halt in all trading in executive share options until a full inquiry actually exposes what has been going on in the privatised utilities."

The Shadow Chancellor estimated that more than pounds 100m had been awarded to about 150 directors in the privatised utilities.

The new furore is likely to continue in the Commons today.