Inquiry sought on share gains

Labour MPs have called for a government inquiry into share option contracts entered into by Trafalgar House and its advisers, Swiss Bank Corporation, in relation to Trafalgar's £1.2bn hostile bid for Northern Electric.

On Wednesday the Stock Exchange said that the rules concerning such contracts, which allowed Trafalgar to benefit from movements in Northern's share price and that of other electricity companies, might need to be changed.

Although the Stock Exchange exonerated Swiss Bank, a group of Labour MPs led by John Cummings have demanded further investigation.

Tony Newton, Leader of the House, said: "As I understand it there has been an indication of further consideration of what are very complex issues, and I don't think it would be appropriate for me to comment further at this time."

The Securities and Futures Authority is looking at the transaction, including the issue of Swiss Bank's "Chinese walls", but may not publish a report. The Department of Trade and Industry has refused to say whether it is conducting its own review.

Separately, it has emerged that Trafalgar House would publish separate accounts for Northern Electric's core electricity business and would allow Northern to keep its year-end of 31 March if its bid is successful.

The undertaking to provide accounting transparency forms a key part of Trafalgar's submission to the electricity regulator, Offer. It also addresses a main concern of Professor Stephen Littlechild, director-general of Offer, that his ability to regulate the industry would be diminished in the event of a takeover.

Professor Littlechild regards as vital his ability to obtain full information on the electricity companies and to be able to compare their performance. This could be damaged if Northern was submerged in a conglomerate.

Financial comparisons would also be more difficult if Northern's financial year-end was changed to 30 September to fit with the rest of the Trafalgar House group.

One industry source said: "Trafalgar House has assured Offer that all information on Northern Electric would be provided on request."

It is now expected that Professor Littlechild will not recommend that the bid be referred to the Monopolies and Mergers Commission, although the Government may refer it on political grounds.