Investors eye £5.3bn takeover of UK water firm

A consortium of Borealis, the Kuwait Investment Authority, and Universities Superannuation Scheme has until June 11 to submit a firm offer for Severn Trent.

The board of directors at Severn Trent – a UK regulated water company serving 7.7 million people – confirmed today it has been approached by a consortium of Borealis Infrastructure, the Kuwait Investment Authority (KIA), and Universities Superannuation Scheme (USS) about a possible takeover.

“This approach is at a very early stage, no proposal has been made and there can be no certainty than an offer will be made or as to the terms of any such offer, should one be forthcoming,” Severn Trent said in a statement. 

The consortium has until June 11 to submit a firm takeover bid, the UK utility added.

While the investor team could not be reached for comment, press reports suggest it is willing to offer up to £23 (€27; $35) a share for Severn Trent, or £5.3 billion. A £23 per share bid would amount to a 26 percent premium to Severn Trent’s Monday closing price. Recent UK water transactions have been netting sellers a 30 percent premium to the assets’ regulated asset base.

The news has boosted Severn Trent’s trading price by almost 19 pence this morning, sending shares to £21.70. It has also had a knock-on effect on other listed peers, inflating their shares.

The UK water sector – currently in year three of its five-year regulatory cycle – has been a hotbed of activity with many deals closed since the beginning of the year and several on the cusp of being clinched.

As reported yesterday, US fund manager Alinda Capital Partners has sold UK water utility South Staffordshire Group – which serves 1.6 million people across England – to private equity stalwart Kohlberg Kravis Roberts for an undisclosed amount.

Meanwhile, Infracapital Partners and Citi Infrastructure Investors (CII) are exploring stake sales in Kelda Group, the parent company of Yorkshire Water, which serves 4.7 million people.

Sources confirmed to Infrastructure Investor that Infracapital is thinking of selling its entire 13 percent stake in Kelda, whereas CII, which owns 37 percent of the business, is mulling cutting down its holding to 20 percent.  Estimates of the value put on the combined 30 percent stake up for sale vary widely, with press reports putting the figure anywhere between £1.5 billion and £2.3 billion.

In late April, Toronto-headquartered fund manager Aquila Infrastructure Management lead a consortium which acquired an unspecified minority stake in Thames Water. Earlier this year, an iCON Infrastructure-led consortium exited the UK’s Sutton and East Surrey Water company for an equity cheque of £164.5 million – reportedly generating a two times return for the sellers.

Borealis is the infrastructure investment arm of the $59 billion Ontario Municipal Employees Retirement System, managing some $10 billion of equity. KIA is the gulf country’s sovereign wealth fund with some $296 billion under management, while USS is a UK pension running some £36 billion, with circa £1 billion currently invested in infrastructure.