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Pru ups stakes in battle for Northern

Chris Godsmark Business Correspondent
Tuesday 24 December 1996 00:02 GMT
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Northern Electric's increasingly chaotic battle against a pounds 782m hostile takeover bid took another unexpected twist yesterday when its biggest shareholder, the Prudential, offered to buy shares in the company if other fund managers who had previously accepted offer from US power generator CalEnergy changed their minds.

Last night at least one investor, the US bank Salomon Brothers, was believed to have sold its stake to Prudential while another, Goldman Sachs, had been approached. Because the result of the bid was so close, even small purchases of shares by the Prudential could swing the result back to the Northern management.

A Prudential spokesman declined to comment on the development, apart from reiterating itss opinion that the 650p a share offer was too cheap. However a senior Prudential source confirmed that it was seeking to buy more Northern shares. He said the Prudential would buy the shares "if some stock was offered to us." He continued: "It's cheap at the price."

Rival fund managers were astonished by the news. One said "This is a bit racy for the Pru. It is quite an unusual stance for them to take."

Though Northern Electric shares were suspended yesterday at 641p pending appeals to the Takeover Panel, the Prudential was buying them "off market" by approaching willing sellers. The results of its buying spree are likely to be made public to the Stock Exchange today.

The move by the Prudential, which already owns 11.35 per cent of Northern and has remained staunchly loyal to the existing management throughout, was widely interpreted as a much-needed boost for the company.

Last night the result of the bid continued to hang on a knife-edge as David Morris, Northern's chairman, mounted a desperate last-ditch appeal against last week's ruling by the Panel's Executive, which effectively holds the outcome of the offer in its hands.

CalEnergy said it spoke for 50.13 per cent of Northern's shares, just enough to give it control, but only if acceptances received after the original Friday deadline were taken into account.

If the Panel decided to reverse its ruling and back the original Friday deadline, CalEnergy would have narrowly lost the contest, with 49.77 per cent of the shares.

However if the Panel endorses its decision and allows late acceptances to be included, Northern's only chance to fight off the attack would be to persuade investors to switch back to existing management. Northern's broker, BZW, has already been barred from buying more of the company's shares by the Takeover Panel.

In another development both Northern and BZW could face disciplinary action after the Panel, which polices bids, announced that it was to investigate the circumstances surrounding the disclosure of a controversial pounds 250,000 "performance" fee granted by Northern to its brokers, BZW.

It has emerged that Northern agreed to pay the fee last Thursday, the day after BZW bought 2.3 per cent of the company's shares in an attempt to breath new life into the bid defence. The share purchases were only approved by the Takeover Panel on Wednesday after BZW assured the Executive that there was no special fee arrangement involved.

The Panel's investigation will to focus on why BZW did not disclose the pounds 250,000 "performance" fee until Friday morning, hours before the offer was due to close.

In a statement the Panel said it would "investigate the circumstances in which information was received from BZW, possibly having a bearing on certain purchases of Northern shares.... Following the investigation, the Executive will consider what, if any, further action is appropriate."

However, sources suggested the investigation was likely to be separate from Northern's appeal against the extension.

Meanwhile, speculation mounted that other City bodies could be dragged into the row. Richard Farrant, chief executive of the Securities and Futures Authority, the City watchdog, said that if the Takeover Panel regarded the deal as having breached its rules it could be referred for investigation to the SFA.

Comment, page 13

Key players in the takeover drama

David Morris, chairman, Northern Electric: Aged 62. Joined as chairman before privatisation in 1989. Architect of the infamous "scorched earth" defence of the Trafalgar House bid, offering pounds 560m of giveaways to shareholders.

The only electricity chief to successfully fight off a hostile bid. His pay has doubled since the flotation in 1990 to pounds 296,000 last year.

David Sokol, chairman, CalEnergy: Aged 40. Trained as an electrical engineer before starting his own business developing independent power projects.

His alliance with Peter Kiewit, a large private US construction group, led to the rapid growth of CalEnergy to sales of $398m last year. Apart from a liking for Rolex watches, Mr Sokol's character appears unblemished. Married his high-school sweetheart. Lives in Omaha, Nebraska. A committed Christian.

Simon de Zoete, chairman, BZW equities division: Joined de Zoete & Bevan in 1966, rising to chairman. In overall charge of Northern Electric broking account. Member of one of the City's oldest broking dynasties.

Adviser to many major US groups, including GEC, ICI and BAT. Played a leading role in Granada bid for Forte.

Derek Higgs, chief executive, Prudential fund management division: Northern's biggest shareholder and Mr Morris's staunch supporter. Until last February he was managing director of corporate finance for investment bankers SG Warburg, which advised Northern during its acrimonious defence of the Trafalgar House takeover bid.

He was seen as an unlikely appointment at the Prudential by insiders, having no prior background in fund management.

Alistair Defriez, director general of the Takeover Panel: Joined the panel in February from SG Warburg, where he worked with Mr Higgs, leading Northern's defence of the Trafalgar bid.

At the time he complained to the panel over a controversial share deal by Trafalgar advisers, Swiss Bank Corporation. Like Mr Higgs, Mr Defriez left Warburgs after the SBC takeover in 1995.

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