Outlook: PowerGen still has ambitions

STOCK MARKET attention may be more on National Power right now, but these are also interesting times for PowerGen. Speculation about a break-up bid for National Power has put its slightly smaller brother in the shade. But Ed Wallis, PowerGen's combative chairman, is back from holiday and itching to get going again.

The great "merger of equals" with Houston Industries of the US has collapsed. Even so, Ed has not altogether given up on his transatlantic ambitions. Meanwhile, there remains the small task of gaining regulatory approval for PowerGen's pounds 1.9bn acquisition of East Midlands Electricity.

The mergers panel met last week to consider the deal and pass its recommendation onto the new Secretary of State for Trade and Industry, Peter Mandelson. PowerGen is confident the decision will go the right way - so much so that it has already paid Dominion Resources its money. Even with a following wind, it is unlikely Mr Mandelson will set out his position before the middle of next month. Then it will depend, critically, on how much generating capacity Ed is prepared to sacrifice in return for being allowed to integrate vertically with a wires and supply business.

If the price demanded by Mr Mandelson and the regulators is too high, then PowerGen could be in a pickle. Its expansion strategy on both sides of the Atlantic could be in trouble.

One option is for PowerGen to find another merger partner in the US. The drawback is that many of the potential brides it is eyeing up also own UK Recs. Then again PowerGen could go for the consolation of a straight takeover of a smaller US utility. But that route is fraught with difficulties too, given the inflated prices that prevail in the American energy sector and the regulatory uncertainties which surround it.

There is, of course, one other scenario - which is that PowerGen is the real takeover target and Nat Power is the diversionary tactic. John Devaney, lately of Energy Group and rumoured to be lining up a bid for Nat Power, is known to regard PowerGen as the more vulnerable of the two generators.

He also shares something in common with Ed Wallis - a love of yachts. John's is in the Med, navigating the Corsican coast. Ed's is named Purple Haze, after the late Jimi Hendrix. We should, perhaps, stand by for some hot licks come the autumn.