Predators circling gas giant Lattice

BANKS and venture capitalists are eyeing gas group Lattice with a view to trumping a £15bn merger offer by electricity distributor National Grid. Although both companies' shareholders have approved Grid's offer of 0.375 shares, a slump in Grid's share price has left many looking for a better arrangement.

When the agreed deal was unveiled in April, Grid closed at 505p, valuing Lattice at 189p. At Grid's Friday close of 461p, up 7p, the offer valued Lattice at 1.73p a share or £6.1bn. This is well short of the £8.5bn some optimistic City analysts reckon Lattice could be worth. Lattice closed up 3 3/4p at 172 3/4p on Friday, almost in line with the value of Grid's offer.

The major barrier to a new deal is thought to be its size, requiring the co-operation of several well-heeled investors. Not only would they have to come up with cash for the shares, they would also have to find an additional £6bn to cover Lattice's debts.

Potential candidates include the Royal Bank of Scotland, the Australian investment bank Macquarie and venture capitalists such as CVC. Germany's WestLB, which is famously mustering the finances to rebuild Wembley, has also been mentioned, although it is understood it is not working on a bid at the moment.

A rival offer would be a blow to Grid. It needs to merge with Lattice to give it the firepower to expand in the US.

Should Lattice decide to recommend another offer, it would have to pay a £60m penalty to Grid. Both companies plan to close the deal in the autumn.