A successful marriage second time around

The day after Swalec was privatised five years ago, Welsh Water snapped up 10 per cent of the shares, and began making indecent proposals about collaboration. A sparky Swalec fought off the wet kiss and the reservoir bosses eventually bowed out of the shareholder register, bloody but unbowed.

With the benefit of hindsight, this was clearly a mistake - given what has happened to Rec share prices in the meantime, and the way Welsh wasted cash on other diversifications. But for Swalec, the first ever approach to a Rec did have a salutary effect. It concentrated on raising efficiency and shareholder value. Though its hilly territory brings high costs that look poor in the league tables, in efficiency improvements and share price performance Swalec has been one of the best in the sector. Welsh has had to offer a top price to secure agreement.

Andrew Walker, the chief executive who leaves with a payoff worth nearly pounds 1,000 a day for his two year tenure, will no doubt be crucified as a fat cat, but for shareholders he has earned every penny and more. Welsh will become the second combined electricity and water utility to emerge this year, and can claim to have thought of the idea well before North West Water, the empire builders of Warrington.

The parallel suggests that there is no case for a monopolies reference, though in fairness Welsh really ought to change its articles, which currently ban holdings above 15 per cent.

The financial gains from higher gearing and tax efficiency are unarguable benefits for Welsh shareholders. The jury is out on the claimed operational efficiencies though the plans, on first exposure yesterday, sounded as if they had more bite in them than North West's.

Swalec shareholders can meanwhile say yes to a decent offer and leave somebody else to worry about whether it works. There is a slight bitter taste for small shareholders, which Swalec has in spades.

Swalec's previously announced pounds 1 a share special dividend is to be included as part of the offer, giving tax exempt institutions a tax credit of another 25p a share. Once again, the exchequer is helping lubricate the wheels of a bid and underlining the point that these days, shareholders are a two class society.