Bill Fraser, the managing director, retired last month and Keith Court, the executive chairman, stands down in April. The perception of the company has also been badly damaged by adverse publicity over water quality and service standards.Colin Skellett. Wessex supplies water to 1.1 million people and sewage services to 2.5 million, while South West provides both services to 1.5 million customers in a neighbouring area.South West is seen as vulnerable because of management upheavals. He is also likely to demand strict ring-fencing of the core water and sewage businesses from the rest of the enlarged groups activities, including the substantial waste management arms.A spokeswoman for Ofwat said: "As groups get bigger the water business need to be safeguarded." Wessex said that it had already held discussions with Mr Byatt on regulatory concerns.Wessex and South West are among the smallest of the 10 privatised companies. He believes that the number of comparators is a key element in his ability to regulate effectively.Mr Byatt exacted a guarantee of a 15 per cent reduction in bills in the recent takeover of Northumbrian Water by Lyonnaise des Eaux of France and has a reputation for becoming tougher with each bid that occurs. However Ian Byatt, the director general, has always made it clear that takeovers within the industry should be accompanied by significant price cuts for consumers to offset the reduction in the number of companies between which he can make comparisons. There were mixed views in the City as to whether a white knight would emerge.Shares in South West Water surged by 70p to 608p while Wessex dropped 20p to 324p.

South West Water said only that the approach was unsolicited and that shareholders should take no action.Ofwat declined to comment on the plans. However, the proposed offer will automatically be referred to the Monopolies and Mergers Commission and no price will be put forward until the regulatory hurdles have been cleared. The merger would be the first among the 10 main water and sewage companies and according to some City analysts could result in the loss of about 250 jobs.The consensus is that a bid by Wessex could succeed at between 600p and 640p per share, valuing South West at up to pounds 800m. MARY FAGAN Industrial Correspondent Wessex Water could be forced by the regulator, Ofwat, to slash prices by 15 per cent or more if its proposed takeover of South West Water announced yesterday goes ahead. The growth drugs of the future are as likely to be found in the emerging biotech companies as in the new giants..

In drugs innovation, putting two and two together can too often make three not five. But to build the new products pipeline which must remain at the heart of any successful drugs business requires the nurturing of expert creative staff. The impact on morale will be massive.The 1970s merger between Ciba and Geigy took years to fulfil its promise. More recently, the bitterness engendered amongst Wellcome staff by the Glaxo takeover is evidence of how sensitive highly-trained specialist staff can be.That might be less important in a manufacturing operation, where staff are a commodity nowadays. The cost in jobs is expected to be around 13,000, with a third falling in Switzerland. The share falls of the last two days suggest the City is again focusing on that lacuna, which could result in earnings growth flagging.Meanwhile, Novartis, the new Swiss giant in the process of formation, is promising rapid returns, with close to pounds 500m annual savings in the first 18 months But that is the easy part.