Shares dive as power bids are blocked

The Government yesterday bowed to political pressure and unexpectedly blocked two bids for electricity generating companies, wiping pounds 1bn off the value of power industry shares.

The move by Ian Lang, President of the Board of Trade, to prevent National Power buying Southern Electric and PowerGen buying Midlands Electricity brought to a halt a wave of mergers that has swept through the electricity industry over the last year.

It overturned a four-to-one majority view at the Monopolies and Mergers Commission that the two deals - which would have been worth pounds 4.5bn - should be conditionally allowed to go ahead. Mr Lang also brushed aside the views of his own officials at the DTI that the takeover would cause no damage to competition.

City and power industry sources claimed that Mr Lang was sidestepping a political row over the impact on competition and electricity prices of dismantling the structure agreed for the electricity industry when it was privatised in1990. Generation was separated from supply and distribution, but the bids would have gone a long way towards bringing the two sides of the industry back together.

After a leak of the commission's report earlier this month, senior Tories, including Norman Lamont, the former Chancellor, attacked its conclusions and urged the Government to ban the takeovers. There were also claims that Mr Lang's decision was to duck further controversy by discouraging a bid for National Power from the Southern Company from the United States. Southern already owns a UK electricity company, South West Electricity and would face similar obstacles to the two banned takeovers if its bid went ahead.

Mr Lang's decision was on the grounds that National Power and PowerGen are electricity generators and that if they were allowed to buy the two regional supply and distribution companies there would be damage to competition. Mr Lang said conditions suggested by the MMC for allowing them to go ahead would not offset the damage.

Consumer groups and the Labour Party have fiercely criticised the takeovers. Yesterday Margaret Beckett, the Labour trade and industry spokesman, said she welcomed "this respite in the free-for-all of merger and takeover activity that the Government has allowed in the electricity industry".

In defence of his decision to snub the MMC, Mr Lang was able to cite Professor Stephen Littlechild, the electricity regulator, John Bridgeman, the Director-General of the Office of Fair Trading and Patricia Hodgson, the BBC head of policy and planning, who was the dissenting member of the MMC. All three were against the bids.

Mr Lang's decision marked a rare victory for Professor Littlechild, whose sceptical views about the wave of electricity takeovers have until now been largely ignored.

Mr Lang insisted he was not against vertical integration in principle, but said that it was not appropriate in these two cases.

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