US predators circle Southern and Midlands

Fresh bid fever hit the power sector yesterday, with both Southern Electric and Midlands Electricity said to be in the sights of US predators, writes Michael Harrison.

Bryan Townsend, chairman of Midlands, is thought to have received at least one informal approach from an overseas utility in the last 48 hours following the shock decison to block PowerGen's pounds 1.9bn bid for the company.

Among the US utilities being mentioned as possible bidders were Houston Industries, which failed last year in a joint bid for Norweb, Mission Energy and Pacificorp.

There were also reports that Southern Company of Atlanta might be lining up for a dawn raid on National Power, although sources close to the American power giant played this down.

Southern, which already owns South Western Electricity and disclosed two weeks ago that it was considering an pounds 8bn offer for National Power, would need US regulatory approval to buy National Power shares. It is not yet thought to have obtained this.

Midlands Electricity shares rose 17p to 388p while Southern Electric was 11p up at 835p.

National Power shares also recovered from heavy falls erlier in the day to stand just 8p lower at 556p while PowerGen was down 15p at 555p.

One observer said: "Ian Lang's decision to block the two takeovers by the generators has put everything back on the table."

If Southern were to bid for National Power it would probably have to dispose of a majority holding in Sweb otherwise its offer would almost certainly be referred to the Monopolies and Mergers Commission.

Meanwhile, National Power executives were urgently deciding what strategy to pursue following the refusal to allow its pounds 2.5bn bid for Southern Electric to proceed.

One option is to proceed with a share buyback or payment of a special dividend to shareholders. Analysts estimate that the generator could afford to purchase up to 15 per cent of its own shares in a move that would cost pounds 900m.

Other alternatives discussed by senior National Power executives and their advisers at a meeting on Wednesday evening include further overseas purchases or UK acquisitions outside the power sector.

There also remains the possibility that National Power may set up its own electricity supply business in readiness to attack the domestic market when it is liberalised in 1998. The generator could seek to set up a joint venture supply compny with one or more regional electricity companies.

An announcement about National Power's strategy is expected by the time of its preliminary resuls in the latter half of next month.