Lyonnaise to face curbs over Northumbrian

The Government insisted last night that it will impose stringent conditions on the proposed bid by Lyonnaise des Eaux, the French utility and property group, for Northumbrian Water, including potential price cuts of up to 20 per cent. The decision follows a ruling by the Monopolies and Mergers Commission that the takeover would act against the public interest.

City analysts said the suggested price cuts are harsher than expected but that Lyonnaise - which had never put a price on its proposed takeover - might still bid at about pounds 9 per share. This would value Northumbrian at about pounds 600m.

Sir Frederick Holliday, chairman of Northumbrian, called on Lyonnaise to end months of uncertainty by clarifying its intentions. Sir Frederick said the company intended to return value to shareholders. "We believe that shareholders should benefit directly from our high level of performance. We are continuing to explore methods of delivering further benefits to shareholders and customers for the results achieved to date and for the out-performance which we are confident of achieving in future."

The MMC said the takeover by Lyonnaise, which already owns North East Water and would merge it with Northumbrian, would prejudice the ability of Ian Byatt, the regulator, to make comparisons between water companies. This in turn would hamper his ability to promote competition.

The Commission concluded that the bid should not go ahead unless the merged enterprise can maintain or exceed the current service standards and offer substantial reductions in price.

Ian Lang, President of the Board of Trade, said he would consult Mr Byatt on the terms to be imposed on the joint operation, including price cuts. Mr Byatt told the MMC during the investigation that he would look for reductions in water bills of 15 per cent to 20 per cent for all water customers of the combined operation.

Jacques Petry, president of the international water division of Lyonnaise des Eaux, said: "Clearly, there is a gap between our position and that of Mr Byatt. We need to discuss it thoroughly but if the expectations are too high, the deal will not go through and that would be to the detriment of customers."

Mr Byatt also welcomed the MMC's acceptance that comparisons between companies are of critical importance to the regulation of the water industry and help achieve a better deal for all customers in England and Wales when setting price limits.

One analyst said the MMC ruling must have implications for mergers between regional electricity companies, including the proposed pounds 1bn takeover of Manweb by Scottish Power.

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