Lang refers power bids to mergers commission

Electric shock: Shares plunge after National Power and PowerGen offers are stopped

MARY FAGAN

and PETER RODGERS

The Government sent shock waves through the electricity industry by referring the takeover bids by National Power for Southern Electric and PowerGen for Midlands Electricity to the Monopolies and Mergers Commission.

The decision sent shares in Southern plummeting by 62p to 913p and those in Midlands by 59p to 918p. Shares in National Power fell 16p to 478p and PowerGen's shares closed down 21p at 540p.

The decision, which was hailed as a triumph by the National Consumer Council, fuelled speculation that US or European predators would swoop on the two regional electricity companies. There is also a view that Southern and Midlands might seek to merge to fend off a hostile foreign attack. A spokesman for the Department of Trade and Industry said: "There is nothing to stop anyone else coming in while the MMC is looking at this."

Ian Lang, President of the Board of Trade, said: "I have decided to refer the PowerGen/Midlands Electricity and National Power/Southern mergers to the MMC because I consider that each of them raises competition concerns in the generation and supply of electricity in England and Wales."

Mr Lang's statement is in sharp contrast to his clearance of five earlier bids, including that for Manweb by Scottish Power, which is also a substantial generator.

One Whitehall source said the City had been wrong to assume that these had set a precedent as the Government had always made it clear that each case would be examined on its merits. "These bids involve very difficult issues - of a different order of magnitude from the others. Whichever way you look at it, it is a major structural change which is being proposed."

The takeovers would have been a significant move towards reintegrating the industry into the structure that was dismantled by the Government before it was privatised. But Mr Lang added: "In general I do not believe that vertical integration is inherently objectionable whether in the electricity industry or elsewhere. However, in these two cases the structural change proposed could have an effect on the development of competition in the industry. This will, of course, be a matter for the MMC to consider and on which they will need to reach their own conclusions."

Keith Henry, chief executive of National Power, said: "We are naturally very disappointed at this unexpected decision. We shall vigorously press the merits of our case with the MMC." Mr Henry warned that National Power may now find it difficult to sell 4,000 megawatts of power plant - as demanded by Offer, the regulator - because potential buyers would be nervous about the structure of the industry.

PowerGen, which has already spent almost pounds 400m buying 21 per cent of Midlands, also vowed to fight on the grounds that it has a "compelling business and competition case". Both PowerGen's pounds 1.95bn bid and National Power's pounds 2.8bn proposed takeover now automatically lapse.

One City analyst said: "Everyone is wondering what will happen to the regional companies that are left and what will happen to the generators if they are tied up at the MMC for months." He said potential American predators included Houston Industries, Texas Utilities and Pacific Gas and Electric. There is also a view that European companies, including Tractabel of Belgium, may attack.

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