£2bn Northumbrian sale in pipeline

FRENCH utility Suez is set to confirm this week that it is seeking a buyer for its biggest UK business, Northumbrian Water, with a price tag of e3bn (£2bn). Executive chairman Gérard Mestrallet is expected to say the group, aiming to slash debts by e9bn, has mandated investment bank Morgan Stanley to handle the sale, when he presents the group's 2002 results on Thursday.

Disposing of Northumbrian, which supplies water and sewage services in north-east England, would provide a handsome surplus to book value. Suez bought 70% for £660m in 1996, and has since lifted its share to 97.5%.

Possible bidders are expected to include include UK venture capitalists Candover Investments and CVC Capital Partners, Australian bank Macquarie, and US investment mogul Warren Buffett.

Mestrallet wants to sell noncore assets, cutting debts from e27.2bn to e18bn, and focus on profitable activities in water, waste, telecommunications and TV.

On Friday, Suez raised some e426m by selling stakes in oil group Total, insurance group Axa and construction and toll-roads group Vinci. The group has already sold its stakes in Scottish Power and steel group Arcelor. It is also planning to sell its 9.95% holding in Belgian banking group Fortis.

Mestrallet promised the sell-offs last September, amid mounting concerns that Suez faced a cash crisis following a merger and acquisition spree in the 1990s. A liquidity meltdown was averted, but Mestrallet was forced to issue a profits warning in January. Results for 2002 will include an e800m writedown on the value of its share stakes, and a e500m charge on its Argentinian investments.

The sell-off and focus on profitable core activities are part of a wider trend which, with moves by the Right-wing government elected last year to sell many residual state industrial holdings, is beginning-to change the face of French industry.

The cross-shareholdings that have historically made many French companies bidproof are also unravelling. The ongoing e19.5bn bid by Crédit Agricole for rival bank Crédit Lyonnais, unleashed after the government sold its 10% stake, is a harbinger of bids to come.