Midlands deal prompts bid speculation

SPECULATION THAT Midlands Electricity is preparing a bid either for another regional electricity company or a water supplier intensified yesterday after ownership of the group changed hands in a pounds 452m deal involving its two US parent companies.

GPU, the New Jersey-based utility which owns half of Midlands, has bought out the other 50 per cent stake owned by the Cincinnati-based Cinergy in a deal valuing Midlands at just under pounds 2bn.

The two US companies bought Midlands for pounds 1.7bn in 1996 through a joint venture called Avon Energy. Since then, however, there has been growing friction between GPU and Cinergy about the strategic direction of Midlands. GPU has been much keener to expand its interests in the UK in electricity distribution and water whereas Cinergy was more interested in growing Midlands' electricity supply business.

Earlier this year, the two companies agreed to sell Midlands' supply business to National Power for pounds 180m, in what represented a victory for GPU's preferred strategy. Now that GPU has acquired 100 per cent control, analysts say there is little standing in the way of its bidding either for another electricity distribution business or a water company.

Mike Hughes, Midlands' chief executive, confirmed last month that it would like to buy a water company. Its favoured target is Severn Trent, which is based in the same part of the country.

Vic Cocker, the chief executive of Severn, is not interested in a merger. However, Severn announced last week that he would be retiring in July next year to be replaced by a former PepsiCo executive, Robert Walker.

Severn Trent shares rose 13p to 1000p.