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The British water company, Severn Trent, has just rejected a second, revised offer of £5 billion ($7.68 billion) from a consortium led by the Kuwait Investment Office, a sovereign wealth fund. Severn Trent believes that the offer still fails to reflect the long-term potential of the company.
The consortium, known as LongRiver, also includes Borealis Infrastructure (part of the Canadian pension fund, OMERS), and Britian’s Universities Superannuation Scheme, and made an offer equal to 2,079.49 pence per share, a 16% premium on the share price.
Stephen Hunt, an analyst at UBS, also agrees that the bid was low, short of his estimate of 2,150 pence per share. “I think a third and final offer that is accepted is certainly not off the cards,” he said.
British water and sewage treatment companies are a very attractive opportunity for investors that are keen to secure good yield due to their stable cash flows and the favourable regulatory structure in the UK. Of the ten water utilities in the country, only Pennon Group, United Utilities, and Severn Trent remain as listed entities, the others are now held by private investors.
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Severn Trent released a statement saying that, “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.”
LongRiver were disappointed by the decision, claiming that their “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.”
LongRiver has until the 11th June to make another bid, a deadline set by the British Takeover Panel.
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…