Consortium to improve bid offer for UK's Severn Trent
27 May 2013
A consortium including Canadian and Kuwaiti investors is in the process of lining up an improved £5-billion takeover bid for water giant Severn Trent, a FTSE 100 company.
The group involving Canada's Borealis Infrastructure Management, the Kuwait Investment Office and the UK's Universities Superannuation Scheme was still thought to considering a range of options but it was believed a second attempt to land Severn would be made before the 11 June deadline.
The consortium's first bid, was rejected by Severn, which was said to be a little short of £5 billion. The bid was found to be inadequate earlier this month. It is understood that even with some Severn investors reportedly holding out for offers of around £5.5 billion the consortium would return with only a slightly improved £5 billion offer, equivalent to around £21 a share.
Severn Trent's share was down at 2071p on Friday. The consortium is said top believe a price review by regulator Ofwat, which could cut the water bills paid by Severn's 7.7 million customers in the Midlands and mid-Wales, made a £5.5-billion valuation more unrealistic and that the lack of any emerging rival bidders also put the consortium in a stronger position.
According to commentators, an offer was not likely to be made before Severn Trent released its annual results on Thursday which were expected to show a profit dip to £271.5 million, down from £275.3 million last time.
Revenues have meanwhile, been tipped to grow to £1.83 billion from £1.77 billion.
According to analysts, if the consortium were to succeed it would leave Severn's rival United Utilities, which supplied water and sewerage services in north-west England, and Pennon Group, which owned South West Water, as the UK's only remaining listed water companies.
Meanwhile, citing top investors, Reuters reported any bid for Severn Trent Plc would need to be pitched at £23 per share or more to have a chance of success.
According to investors, they would happily remain shareholders if no such bid appeared by the 11 June deadline set by the Takeover Panel. They pointed to Severn Trent's secure dividend prospects, coupled with a dearth of similar investments.
The board turned down the approach, as it offered only a modest premium to the company's previous share price.
However, several top investors said they would likely consider an offer if the consortium returned with terms priced at around £23 a share or above, according to Reuters.
One noted a premium of a quarter or more to the value of the company's so-called regulated asset base (RAB) - a key measure used by regulators for evaluating the return the company was allowed to earn - was reasonable.
