French win London power bid

THE STATE-OWNED French electricity supplier, Electricite de France, yesterday won the auction for London Electricity with a pounds 1.9bn bid but immediately ran into concerns over whether the deal would get regulatory clearance.

EdF secured victory after agreeing to increase its offer on condition that Entergy, the US owners of London Electricity, paid a "break fee" of around pounds 50m in the event that the business was sold to the other remaining bidder in the race, British Energy.

British Energy is understood to have raised its offer for the second time last Friday but it was not enough to top the bid by EdF, one of the world's largest utilities with revenues of pounds 20bn and 45 million customers.

EdF is paying pounds 1.39bn for London and assuming a further pounds 480m of debt, making a total purchase price of pounds 1.87bn. This compares with the pounds 1.5bn, including debt, that Entergy paid for London when it bought the business in December 1996.

The French offer is not conditional on regulatory clearance and is due to be complete before the end of this month. Because it is a large cross- border acquisition, the deal automatically goes to Brussels for investigation.

But Peter Mandelson, Secretary of State for Trade and Industry, can ask for jurisdiction to be handed back if he feels there are sufficient grounds for it to be examined by British competition authorities.

There are concerns that EdF is state-owned, and therefore could not be bought by a UK company, and that it already accounts for 6-7 per cent of the UK electricity market through the interconnector linking France and Britain. Mr Mandelson has recently criticised the fact that the interconnector largely runs one-way.

The deal could be brought back for vetting in the UK on grounds of national security or because of its effect on a "distinct market". Advisers to EdF disclosed yesterday that it had received a dispensation from Brussels to proceed with an unconditional offer - which is not allowed under Commission rules - without fear of subsequently being fined. Jack Cizain, managing director of EdF International, said Brussels should clear the deal because it did not pose an threat to competition in Europe.

Even if the bid is ruled on in Brussels the electricity regulator, Offer, still has to approve the transfer of London Electricity's licence to EdF, giving the UK authorities the chance to extract concessions.

Outlook, page 17