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Severn Trent says £5bn bid is not high enough Severn Trent says £5bn bid is not high enough
(4 months later)
The water company Severn Trent has rejected a preliminary approach that valued it at about £5bn, saying it was undervalued.The water company Severn Trent has rejected a preliminary approach that valued it at about £5bn, saying it was undervalued.
The earlier news of the potential bid drove shares in the FTSE 100 company – which supplies water and sewerage services to 4.2m businesses and households in the Midlands and mid-Wales – almost 14% higher to close at £20.77. The potential takeover comes from a consortium of the state of Kuwait's investment arm, a Canadian infrastructure investor and one of the UK's largest pension funds.The earlier news of the potential bid drove shares in the FTSE 100 company – which supplies water and sewerage services to 4.2m businesses and households in the Midlands and mid-Wales – almost 14% higher to close at £20.77. The potential takeover comes from a consortium of the state of Kuwait's investment arm, a Canadian infrastructure investor and one of the UK's largest pension funds.
The company, formed in 1989 as part of the process to privatise the UK water authorities, met with the Kuwait Investment Office (KIO), Borealis Infrastructure Management and the Universities Superannuation Scheme.The company, formed in 1989 as part of the process to privatise the UK water authorities, met with the Kuwait Investment Office (KIO), Borealis Infrastructure Management and the Universities Superannuation Scheme.
"At that meeting, a conditional proposal was tabled by the consortium at only a modest premium to the share price before the announcement of May 14. The board of Severn Trent has reviewed the proposal with its advisers and concluded that it completely fails to recognise the existing and potential value of Severn Trent," the company said."At that meeting, a conditional proposal was tabled by the consortium at only a modest premium to the share price before the announcement of May 14. The board of Severn Trent has reviewed the proposal with its advisers and concluded that it completely fails to recognise the existing and potential value of Severn Trent," the company said.
The consortium faces a final deadline of 11 June to make a firm offer.The consortium faces a final deadline of 11 June to make a firm offer.
The KIO is the London branch of the Kuwait Investment Authority, which manages the state's vast oil revenues.The KIO is the London branch of the Kuwait Investment Authority, which manages the state's vast oil revenues.
Canada's Borealis has other investments in the UK, including High Speed 1, Associated British Ports, and Scotia Gas Networks.Canada's Borealis has other investments in the UK, including High Speed 1, Associated British Ports, and Scotia Gas Networks.
Analysts said water companies made attractive takeover targets because of their large customer bases, guaranteed income streams and cash generation.Analysts said water companies made attractive takeover targets because of their large customer bases, guaranteed income streams and cash generation.
Howard Wheeldon, an independent analyst, said water companies were considered "mini safe havens". Ronnie Chopra, head of strategy at Tradenext, said the bid for Severn Trent "highlights the value among other utilities, especially United Utilities, which has been touted as a bid target for many years".Howard Wheeldon, an independent analyst, said water companies were considered "mini safe havens". Ronnie Chopra, head of strategy at Tradenext, said the bid for Severn Trent "highlights the value among other utilities, especially United Utilities, which has been touted as a bid target for many years".
"United has constantly generated very strong cash flow and is backed by one of the highest dividend yields in the FTSE 100.""United has constantly generated very strong cash flow and is backed by one of the highest dividend yields in the FTSE 100."
United Utilities shares rose 2.8% to 760.5p yesterday.United Utilities shares rose 2.8% to 760.5p yesterday.
Tina Cook, analyst at Charles Stanley, said despite the appeal of UK listed water companies to overseas investors and infrastructure funds, the timing of the approach for Severn Trent was "surprising".Tina Cook, analyst at Charles Stanley, said despite the appeal of UK listed water companies to overseas investors and infrastructure funds, the timing of the approach for Severn Trent was "surprising".
"The timing of the potential deal is somewhat surprising in that it comes just ahead of the UK water sector's next regulatory price review 2015-20, which is currently underway and due to be finalised next year. This inevitably creates some mid-term risk across the sector," she said."The timing of the potential deal is somewhat surprising in that it comes just ahead of the UK water sector's next regulatory price review 2015-20, which is currently underway and due to be finalised next year. This inevitably creates some mid-term risk across the sector," she said.
Last month Severn Trent announced that its chief executive, Tony Wray, had told the board of his intention to step down in Spring 2014 after seven years in the role and nine at the company.Last month Severn Trent announced that its chief executive, Tony Wray, had told the board of his intention to step down in Spring 2014 after seven years in the role and nine at the company.
The company said it was announcing his retirement to allow the necessary time to a search for his successor, as well as an "orderly handover".The company said it was announcing his retirement to allow the necessary time to a search for his successor, as well as an "orderly handover".
If a deal does materialise, it would make Severn Trent the latest UK water company to be bought by foreign investors. Thames Water was acquired in 2006 by a consortium led by Australian investment group Macquarie for £8bn.If a deal does materialise, it would make Severn Trent the latest UK water company to be bought by foreign investors. Thames Water was acquired in 2006 by a consortium led by Australian investment group Macquarie for £8bn.
A year later the owner of Yorkshire Water, Kelda Group, was sold to a group of buyers including Citigroup, HSBC, Singapore sovereign wealth fund GIC, and Infracapital Partners.A year later the owner of Yorkshire Water, Kelda Group, was sold to a group of buyers including Citigroup, HSBC, Singapore sovereign wealth fund GIC, and Infracapital Partners.
Severn Trent was formed in 1974 as a regional, publicly owned water authority based in Birmingham and providing services around two of Britain's largest rivers - the Severn and the Trent.Severn Trent was formed in 1974 as a regional, publicly owned water authority based in Birmingham and providing services around two of Britain's largest rivers - the Severn and the Trent.
Severn Trent Water operates from the Bristol Channel to the Humber and from mid-Wales to the East Midlands, while Severn Trent Services – a supplier of water and waste water treatment solutions - operates in the Americas, Europe, Middle East and North Africa, and Asia Pacific.Severn Trent Water operates from the Bristol Channel to the Humber and from mid-Wales to the East Midlands, while Severn Trent Services – a supplier of water and waste water treatment solutions - operates in the Americas, Europe, Middle East and North Africa, and Asia Pacific.
Wealth of resourcesWealth of resources
The Kuwait Investment Office, the London branch of Kuwait's sovereign wealth fund, has investments worth more than £15bn in 100 UK listed companies and holds a stake in Gatwick airport via private equity funds.The Kuwait Investment Office, the London branch of Kuwait's sovereign wealth fund, has investments worth more than £15bn in 100 UK listed companies and holds a stake in Gatwick airport via private equity funds.
Through its property company St Martins, the Kuwaiti state invests its oil wealth in upmarket offices in the City of London and Canary Wharf.Through its property company St Martins, the Kuwaiti state invests its oil wealth in upmarket offices in the City of London and Canary Wharf.
Borealis Infrastructure has interests in Associated British Ports, the UK's largest ports company with 21 ports, as well as HS1, the UK's only high-speed railway line, linking London to Brussels and Paris. The Canadian group also holds a 25% stake in Scotia Gas, which provides fuel to 5.7 million people in Scotland and the south of England.Borealis Infrastructure has interests in Associated British Ports, the UK's largest ports company with 21 ports, as well as HS1, the UK's only high-speed railway line, linking London to Brussels and Paris. The Canadian group also holds a 25% stake in Scotia Gas, which provides fuel to 5.7 million people in Scotland and the south of England.
The Universities Superannuation Scheme has invested UK higher education workers' pensions in bonds in the UK's Affinity Water and South East Water, and infrastructure projects in continental Europe and Australia.The Universities Superannuation Scheme has invested UK higher education workers' pensions in bonds in the UK's Affinity Water and South East Water, and infrastructure projects in continental Europe and Australia.
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