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Friday, November 20, 1998 Published at 21:27 GMT

Business: The Company File

Battle for the utilities

The French state-owned electricity group, Electricité de France, is poised to win control of London Electricity, with a bid well in excess of £2bn.

The offer will trump rival bids by British Energy and National Power.

In this BBC News Online special report we examine the background to foreign takeovers in the British utility industry and how the tide is starting to turn.

Bright sparks

Water and electricity firms privatised under the Conservatives have proved to be attractive takeover targets.

The initial rush of takeovers was fuelled by bargain stock prices, debt-free balance sheets, and the prospect of lighter regulation compared to foreign markets.

They were particularly widespread in the electricity industry.

Eight of the 14 regional companies are now American-owned. They include firms like Sweb which owned by Southern Company and Northern Electric owned by CalEnergy.

However, there are signs that this trend is changing as UK firms frustated by attempts to make takeovers abroad start looking nearer to home.

Britain's PowerGen is bidding to take over East Midlands Electricity.

[ image: The privatisation of electricity firms sparked intense interest]
The privatisation of electricity firms sparked intense interest
It is planning to sell off two coal-fired power stations in Warrington and Cheshire in order to prevent Trade minister Peter Mandelson from referring the deal to the Monopolies and Mergers Commission.

Southern Electric is also planning to merge with Scottish Hydro-Electric and is also awaiting the outcome of an investigation by the Department of Trade and Industry, which is due out November 26.

The regulatory hurdles are not easy to clear.

UK electricity industry watchdog Offer still thinks that it is better for customers if firms who supply electricity and firms who distribute it are kept separate.

In a statement welcoming the government's plan to merge Offer with gas industry regulator Ofgas, the Director General of Electricity Supply Stephen Littlechild made his views clear.

He said: "I still consider that the detriments to competition associated with the common ownership and operation of electricity distribution and supply businesses would best be addressed by requiring separate ownership.

"However, if common ownership is to continue to be permitted, then it is essential that the supply and distribution businesses are held by separate companies within the group."

Water mergers

Water companies have also been hot takeover targets although now that regulation in the industry is starting to get tougher the prospect of smaller profits may make their popularity wane.

Water watchdog Ofwat wants to cut bills by up to a fifth between 2000 and 2005 prompting a chorus of criticism from the water industry.

[ image: Water companies are facing tougher regulation]
Water companies are facing tougher regulation
Five of the 10 water companies floated on the stock market in 1989 have now been taken over.

Two are owned by foreign firms - Wessex Water which is owned by US energy giant Enron the other being Northumbrian Water which is part of the French Lyonnaise des Eaux group.

And three have combined with other UK utilities.

Water firms in the North West and Wales joined with local electricity firms to form United Utilities and Hyder respectively, while electricity generator Scottish Power moved south of the border with the take-over of both Southern Water and Manweb, another regional electricity companies.

Competition grows

Consolidation in the utilities sector is also being fuelled by markets starting to open up to further competition which has required extra capital investment.

British Gas is selling electricity to its customers, while some of the electricity companies are among those now offering combined gas and electricity deals.

The multi-utility firm Hyder, formed when Welsh Water paid £872m for regional power supplier Swalec in 1995, not only supplies water and electricity but also has 350,000 gas customers.

It has led to lower bills for many customers and the utility industry watchdogs are keen to ensure that trend continues.

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