UK utility Northumbrian Water announced yesterday that it has received a “revised non-binding proposal at 465 pence in cash per ordinary share for the company”, or £2.4 billion (€2.7 billion; $3.8 billion) in equity, from Hong Kong’s Cheung Kong Infrastructure (CKI).
CKI’s bid values Northumbrian Water at about a 30 percent premium to the utility’s regulated capital base. The Hong Kong investor is now conducting due diligence on Northumbrian Water. Should it choose to table a firm bid for the water company, CKI will be forced to sell Cambridge Water, another UK utility it owns. CKI also owns a 5 percent shareholding in Southern Water.
The Hong Kong investor’s proposal also includes a “net final dividend of 9.57 pence per share in respect to the year ended Mar 31 2011,” Northumbrian announced.
Angelos Anastasiou, of banking and asset management group Investec, believes CKI’s offer for Northumbrian is “generous, but in line with what has been paid for similar type of infrastructure deals”. The hefty premium, Anastasiou said, is also probably necessary to get the Ontario Teacher’s Pension Plan (OTPP), Northumbrian Water’s largest shareholder with 27 percent of the utility, on board.
“Assuming nothing irregular crops ups, I believe Northumbrian’s board will recommend CKI’s bid once it becomes a firm offer, especially as it includes a dividend of almost 10 pence,” Anastasiou added.
Northumbrian Water provides water and sewerage services to some 2.6 million people in northeast England and water services to about 1.7 million people in southeast England. CKI’s non-binding offer gives the utility an enterprise value of roughly £4.7 billion.
Last November, CKI paid £5.78 billion to take over the UK power grid business of French utility EDF, comprising three regional networks serving some 7.8 million customers in London, southeast and eastern England. The acquisition was CKI’s fifth purchase in the UK.