PowerGen bid intensifies feeding frenzy
Jeremy Warner analyses a takeover plan likely to spark political controversy
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Your support makes all the difference.Executives of PowerGen, Britain's second largest electricity generating company, were last night trying to thrash out the final details of an agreed takeover bid of up to pounds 2bn for Midlands Electricity.
This would be the fifth takeover bid so far this year for a regional electricity company, privatised by the Government in the early 1990s.
The takeover bid will intensify the political row surrounding electricity bids. Not only does this new bid heighten the impression of a feeding frenzy among Britain's privatised utilities, but it also raises issues of "vertical integration", the combination of an electricity generating company with a distributor.
PowerGen is Britain's second largest non-nuclear generator and Midlands one of the largest distributors in England and Wales. So far neither regulators nor ministers have felt themselves able to stop the wave of takeover activity in the electricity sector.
Investment bankers in the city have been queuing up to advise potential predators, with lucrative fees at stake.
Ed Wallis, chief executive of PowerGen, is likely to present the bid as a way of keeping Midlands in British hands. Most of the potential bidders for regional electricity companies are US utilities.
Takeover fever in the sector was sparked late last year when Trafalgar House bid for Northern Electric. That in turn led to the electricity regulator, Professor Stephen Littlechild, re-thinking his review of electricity tariff controls. However, although the new price controls were tougher than those previously proposed, they were not enough to deter bidders. No bid in the sector has yet been referred to the Monopolies and Mergers Commission, despite calls for such action by Labour and in some quarters of the Conservative Party.
There is widespread speculation in the City that at least another two electricity bids are being lined up. British Gas has refused to rule out a similar move on one of the regional electricity companies, with Seeboard the most likely target.
The latest takeover offer is bound to prompt fresh calls for root and branch reform of the regulatory system for utilities. Regional electricity companies have performed far better than anticipated at the time of privatisation, prompting accusations of profiteering.
Most of the benefits of efficiency gains seen in this industry since privatisation are perceived to have gone to shareholders rather than customers.
Labour is due to unveil next Tuesday new policies for tougher regulation. This does not, however, seem to have deterred bidders who see the utilities as providing a stable and predictable stream of monopoly revenue.
Ed Wallis, chief executive of PowerGen, has become synonymous in the public mind with the image of a "fat cat" utility executive, having seen the value of his salary, bonuses and share options rise substantially since privatisation.
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