Comment: Few will gain from the great utilities scramble

When Sir Desmond Pitcher, chairman of NorthWest Water, launched his bid for Norweb, City and press reaction was one of almost universal scepticism. True, the deal went through (the fees riding on it made sure of that), and since then the grandly renamed United Utilities has been able to identify benefits and cost savings even greater than those anticipated at the time. But the shares have gone nowhere. What that tells you is that while we might intellectually have come to accept the supposed logic of these multi-utility mergers, fundamentally we don't buy it.

The logic of these things is in any case superficial and debatable. In truth, the single utility company would appear to have few advantages over the present segregated structure. Most of us quite like the idea of a series of different utilities we can moan at. Information technology has also reduced the cost advantages of a single monolithic administrative and billing system over traditional stand-alone ones to virtually nil, however much they duplicate each other.

But the real question about these takeovers is whether they can be made to produce much in the way of shareholder value. This, after all, is meant to be the point of making acquisitions. Outside some one-off cost savings, the case has yet to be convincingly made.

Now the Scots are joining the fashion. Luck, favouritism and capricious policy-making mean that ScottishPower has already become the only generator allowed to bid for a regional electricity distribution company. With yesterday's bid for Southern Water, the Scottish utility invasion is taking a stage further deep into the southern counties of England.

On the face of it, this is a takeover even sillier than that of NorthWest Water for Norweb. At least those two companies had the advantage of the same geographical franchises. A combination of Scottish, Manweb and Southern Water doesn't even have that. So what is the purpose of what, even by ScottishPower's own admission, are the very generous terms being offered to Southern Water shareholders? Don't be stupid. It's obvious. It is the creation of "a leading multi-utility business serving 5 million customers". Er, right.

Moreover, the company promises to "grow sales of electricity and gas in southern England, thereby enhancing competition in regulated utilities, and will compete for sewerage projects in Scotland". Great. So management gets to sock it to British Gas and the local regional electricity company. With a bit of luck it also gets to wash its hands in Strathclyde's dirty water too. Oh, and Southern Water customers will receive a 3 per cent reduction in permitted prices. And what about shareholders? "We are confident it will deliver benefits to the shareholders of both ScottishPower and Southern Water", says Ian Robinson, chief executive of ScottishPower. Yes, and? Well, he adds somewhat desperately, it will be earnings-enhancing. That's just fine then. Never mind the fact that earnings enhancement has been the bottom-line rationale for some of the most disastrous takeovers and mergers of all time. Financial engineering alone does not a takeover strategy make.

The truth of the matter is that this takeover is little more than good old-fashioned empire-building. Probably, though not necessarily, it is a relatively harmless example of the genre. It is hard to go far wrong with a regional water monopoly, which unlike gas and electricity can never be opened up to competition. There is, however, the little matter of regulatory risk. If British Gas is anything to go by, Scottish is buying at the top of the market. The great lesson from gas is get out before the regulator moves in.

It would be naive to think that comment of this sort is going to halt the deal. So confident are Scottish and its advisers of their ground that they are able without any hint of self-doubt to use the very same arguments to support their transaction that were used to mock NorthWest, and to a lesser extent Welsh Water, when they launched their own "multi-utility" takeovers. What? A single company to provide you with your electricity, gas, water, telephone and giro cheque? And why not? says Mr Robertson.

It is a fair bet, as the stock market readily appreciated yesterday, that he won't be the last to say it. As likely as not, PowerGen and National Power, now banned from further expansion in their own industry, will be following him. The consolidation of Britain's utilities thus becomes like the great colonial carve-up of Africa. We must all have our bits, said Britain, France and Germany. And did it, ultimately, do anyone any good? Of course it didn't.

Sir Colin prepares to face boarders

Is Sir Colin Southgate going to get the chance to see in his retirement at EMI? The betting in the stock market, where shares in the soon-to-be- demerged Thorn EMI get buffeted almost daily by takeover rumour, is that he will not. Once the glamorous music side, EMI, is separated from the distinctly unglamorous Thorn TV rental interests, then someone is bound to come in and snap it up, runs the theory. Sir Colin is robustly sceptical of such theories but it is hard to tell what this actually means. His dismissiveness, for instance, may be no more than bravado, a deterrent to those prepared to give it a go.

Sir Colin's fruitless merger talks with Bertelsmann, the German media group, although not initiated by him, smacked of defensiveness and have done nothing to discourage the speculation. The Bertelsmann talks, which broke down a couple of months ago, became known as a result of a chance encounter between a Financial Times reporter and Sir Colin as he left a meeting with Bertelsmann's Michael Dornemann in Guetersloh, where the German group is based. Challenged by the reporter, Sir Colin was forced to concede at least an element of what he was doing there.

As it turned out, the talks were going nowhere fast. Bertelsmann was the bigger company, but EMI by far the more profitable. Bertelsmann, a privately owned concern, had that wonderful German characteristic of believing that there are some things in business more important than profit. This didn't sit very easily with Mr Dornemann's real priority - "ve vont control". It can be seen this was not a deal Sir Colin would have found very easy to sell to shareholders - they would have been left as a minority in a bid-proof company interested in rather grander things than making profits.

Now that really would have brought the likes of Disney, Viacom, Seagram, or any one of a host of other rumoured suitors down on his back. The question is whether any of them might be prepared to do it anyway. Even at the present rumour-inflated price, there is a case for saying that Thorn EMI is cheap. Few large businesses can boast the prospect of double-digit earnings growth into the indefinite future. Thorn too will probably prove a more attractive business than the stock market gives it credit for. Sir Colin may yet have to spend a good deal of his time repelling boarders.