One day later, Severn Trent rejects takeover

The UK utility said a conditional proposal from Borealis, the Kuwait Investment Authority and USS ‘completely fails to recognise the existing and potential value of Severn Trent’.

Just 24 hours after it announced that it had been approached by a consortium of institutional investors about a potential takeover, the board of directors at UK regulated water firm Severn Trent strongly rejected the investors’ “conditional proposal”. 

“Representatives of Severn Trent met representatives of the consortium [yesterday] for the first time. At that meeting, a conditional proposal was tabled by the consortium at only a modest premium to the share price before the announcement of May 14. The board of Severn Trent has reviewed the proposal with its advisers and concluded that it completely fails to recognise the existing and potential value of Severn Trent,” the firm said in a statement. 

A spokeswoman from Severn Trent did not wish to elaborate on what the “modest premium” tabled by the investor consortium of Borealis Infrastructure, the Kuwait Investment Authority (KIA), and Universities Superannuation Scheme (USS) amounted to. But sources familiar with the process said the premium offered “was nothing like what has been reported in the media”. 

Press reports suggested the investor team was willing to offer up to £23 (€27; $35) a share for Severn Trent, or £5.3 billion. A £23 per share bid would have amounted 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 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 recently reported, 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 are exploring stake sales in Kelda Group, the parent company of Yorkshire Water, which serves 4.7 million people. 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 led 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.