Northern Electric holds out £50m Grid carrot

Shareholders in Northern Electric would gain up to £50m from any special dividend paid prior to the flotation of the National Grid Company, which is owned by the regional electricity firms. That would be the equivalent of about 50p per share. The price closed unchanged at 980p last night.

The regional companies are discussing a dividend of up to £1bn with the Government as part of negotiations on the proposed grid float and Northern is offering to pass its portion through as part of its defence against a £1.2bn hostile bid by Trafalgar House.

David Morris, Northern's chairman, said the dividend would be of more value than Trafalgar's offer of bonds exchangeable for National Grid shares, included as an alternative in its bid for Northern. It is also expected that Northern Electric will declarea separate special dividend, unrelated to the National Grid Company, within the next few weeks.

Mr Morris was speaking as Northern launched its first defence document, rejecting the Trafalgar House offer as "wholly inadequate and unacceptable". At the same time Northern called a long-awaited extraordinary general meeting to change the company's articles of association, which prohibit any shareholder owning 15 per cent or more of the company.

Mr Morris said: "In terms of comparable performance on delivering returns to shareholders, we are in a different league to Trafalgar." He said the bid made no commercial sense and questioned the motivation of the Jardine Matheson group, a minority shareholder which in effect controls Trafalgar House.

He went on to warn that the industry watchdog, Offer, had insufficient powers to protect customers' interests in the event of a takeover or to stop the financial strength of the core electricity business being used for other purposes. "The question is whether the regulator has enough teeth. I do not believe regulation can prevent that financial strength being used for purposes other than that intended. The only way to sort that out is to have a Monopolies and Mergers reference."

The defence document also shows that on 19 December, just after the bid was announced, Northern agreed to increase the salary of Anthony Hadfield, chief executive, from £160,000 to £180,000. The company said that the increase, which followed a rise of £10,000 in September, reflected a change in the balance of duties between Mr Hadfield and Mr Morris.

Trafalgar House accused Northern of trying to divert attention from the level at which Northern's shares would trade in the absence of an offer.