Severn Trent spent 9% of profits fending off takeover

UK listed utility Severn Trent said yesterday it has spent £19 million (€22 million; $29 million) in “advisory, legal and other” fees – roughly equivalent to 8.8 percent of this year’s pre-tax profits – fending off a recent spate of takeover offers.

Rothschild, Citi, Barclays, Morgan Stanley – on the banking side – law firm Herbert Smith, and PR outfit Tulchan advised Severn Trent over the month-long takeover process, at the rate of roughly £600,000 a day. Earlier this year, the water firm had announced a pre-tax profit of £215 million for the year ending March 31.

The takeover proposals – thrice rebuffed – were tabled by a team comprising Canadian pension Borealis Infrastructure, UK pension Universities Superannuation Scheme and sovereign wealth fund the Kuwait Investment Office. The bidders decided against submitting a fourth bid, missing a required June 11 deadline, and will now have to wait six months to pursue Severn Trent further.

The consortium’s last bid had offered 2,200 pence per share (2,154.49p plus an already announced 45.51p per share final dividend), valuing Severn Trent at £5.3 billion. It had previously made an offer of 2,050p on May 14 and then 2,125p on May 31. Severn Trent said “private conversations” over June 6 and 7 had pushed the amount up to 2,170.51p plus a further 4.49p per share.

Severn Trent chairman Andrew Duff said at the time: “We have consistently made clear to the consortium our belief that Severn Trent has a value to our shareholders above the level it indicated it was willing to pay. The difference in value has been at the heart of this process and the consortium has either not been able, or willing, to bridge that gap.”

But Borealis chief executive Michael Rolland expressed frustration with the whole process, stating that:

“Since we submitted our [first] proposal on May 14, no member of the consortium or its advisers have met any of the directors or advisers of Severn Trent or its advisers, despite repeated requests. The Severn Trent Board has shown no interest in discussing our pre-conditional offer with us.”

Rolland’s frustrations may have been shared by some of Severn Trent’s major shareholders. A June report in the Telegraph newspaper claimed that three of the company’s 15 largest investors had said they were “disappointed” at the outcome and expressed surprise at the lack of engagement given what they considered to be only a small gap to an acceptable price.

Severn Trent held its annual shareholders meeting in Birmingham yesterday.