Pressure grows to stall utilities merger

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The Independent Online
Ian Lang, the President of the Board of Trade, was under mounting pressure last night to stall a pounds 1.6bn take-over bid made yesterday by North West Water for Norweb, the electricity company.

Downing Street sources said the Prime Minister, John Major, would call for a report on the bid from Mr Lang, which could be raised at a special Cabinet meeting next Wednesday to review Government business. The Government's only power to halt the bid, which was opposed by Norweb's management, would be to ask for an inquiry by the Monopolies and Mergers Commission.

"The fact that it is now a hostile bid makes it more likely there will be a reference," another Whitehall source said. "There is nothing against the merger of two companies from different industries, so it will be a political decision. But I think it is likely."

The bid was criticised by MPs from all sides, by unions which predicted thousands of job losses, and by consumer groups. Benefits for consumers from the expected cost-savings will be delayed until beyond the year 2,000. Demands for the takeover to be blocked were led by John Redwood, the former Cabinet minister who challenged Mr Major for the leadership. Mr Redwood warned the Government against allowing "two powerful monopolies" to "gang up against the customer".

Labour and the Liberal Democrats also called for a reference to the MMC if the bid is pursued. Jack Cunningham, Labour's Trade and Industry spokesman, wrote to Mr Lang to demand clarification of the Government's policy and warned: "A Labour government would not allow such a state of affairs to arise."

The take-over bid is embarrassing for the Government, on the defensive over criticism of the privatisation of the water industry following shortages in the recent drought, and over the row about "fat cat" salaries for utility bosses. Norweb said the offer undervalued the company.

Sir Desmond Pitcher, chairman of North West Water, said the proposed deal is "logical and attractive" and the price on offer was "very fair".

He said the benefits for customers would be "powerful" as a result of increased efficiency but would not come through until after the end of the decade.

The company said that as shareholders are to foot the bill for the acquisition, they are entitled to see a return before customers gain through reduced charges.

Sir Desmond said: "Customers beyond the year 2000 will have lower bills than if they stayed as two companies." He added: "There will be job losses. We are not hiding from that fact." Many are likely to be among the 4,000 workers from the two companies which North West would put into a central "Facilities Management" company. It is likely that there would be losses from a rationalisation of the Norweb and North West headquarters - respectively in Manchester and Warrington. Unions claimed the planned merger could mean more than 2,000 job losses. Joan Fletcher, head of electricity for the union Unison in North West, said: "Water and electricity are being thrown into the money markets for gain." She attacked Sir Desmond for his "enormous wages rises" and criticised the "massive" profits made by the companies in recent years. Ofwat and Offer, whose views are crucial to whether the bid will succeed, will issue a joint consultation document early next week. Ofwat said the main concerns would be the continued ability to regulate if the companies are merged and potential benefits

for customers. Anthony Goldstone, chairman of the Ofwat consumer body in the North West region, called for regulators to be given more powers so they could give the public extra protection if the merger went through. Mr Goldstone said: "We have to have stronger guaranteed standards and a customers' charter ... These commodities are their life blood". Under the terms of the bid, Norweb's shareholders are being offered pounds 9.75 in cash or pounds 10.15 in a mixture of cash and shares. Norweb's share price soared yesterday by 33p to pounds 10.08 while North West Water's shares rose by five pence to pounds 6.16. On completion of the deal North West will change its group name to United Utilities.