UK water firm rejects $7.6bn Kuwait-backed bid
London, June 4, 2013
British water firm Severn Trent has rejected an improved 5-billion-pound ($7.6 billion) bid proposal from a consortium led by a Kuwaiti sovereign wealth fund and two pension companies, saying the price fails to recognise its long-term potential.
Severn Trent said on Monday the consortium, called LongRiver, was prepared to offer 2,079.49 pence per share in cash, 16 percent above its share price before news of LongRiver's interest emerged and up from a previous proposal believed to be just under 20 pounds a share.
UBS analyst Stephen Hunt said the new proposal was short of his fair value estimate for Severn Trent of at least 2,150 pence a share, but that a further increase could seal a deal.
"I think that a third and final offer that is accepted is certainly not off the cards," he said.
LongRiver includes the Kuwait Investment Office, Borealis Infrastructure - part of Canadian pension fund OMERS - and Britain's Universities Superannuation Scheme. It has until June 11 to make a final bid under a deadline set by Britain's Takeover Panel.
Shares in Severn Trent, which has 7.7 million customers mainly in central and western England and Wales, were down 0.3 percent at 2,046 pence by 1510 GMT.
Britain's water and sewerage firms have long attracted interest from yield-hungry investors drawn by their stable cash flows and a favourable regulatory structure.
Seven of the country's ten water companies are now in the hands of private investors, with Pennon Group, United Utilities and Severn Trent the remaining listed entities.
"The board unanimously believes that LongRiver's revised conditional proposal ... fails to value the attractions to Severn Trent's shareholders of Severn Trent's increasingly rare combination of yield, inflation-linked business model and potential," the water company said in a statement.
LongRiver said it was "surprised and disappointed".
"Our revised proposal is highly deliverable, appropriately financed and would offer certain and compelling value to Severn Trent's shareholders, recognising its higher cost of debt and long term prospects," it said.
One issue between buyer and seller is that Severn Trent's net debt, when adjusted for fair value which takes into account market conditions, is 774 million pounds above book value. This difference could affect returns for the bidding firm as they mean interest costs could be higher and are taken into account when valuing the company.
LongRiver's proposal was pitched at 2,125 pence per share but excluded a 45.51 pence per share final dividend announced last week, the water company said. - Reuters