Severn Trent twice rebuffs takeover

The board of directors at Severn Trent – a UK regulated water company serving 7.7 million people – is not convinced the utility is being adequately valued by a consortium of international institutional investors and has once again rejected their takeover offer.

“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,” Andrew Duff, Severn Trent’s chairman, stated.

LongRiver Partners is a consortium of Borealis Infrastructure, the Kuwait Investment Authority, and Universities Superannuation Scheme. The investors first approached Severn Trent about a possible takeover in mid-May, but their undisclosed proposal was rebuffed at the time.

Now, the investors tabled a £21.25 (€24.8; $32.5) per share bid for Severn Trent – an offer excluding an already announced dividend of 45.51 pence per share – which would value the company at around the £5 billion mark – a 16 percent premium to the utility’s share price before the first takeover proposal was announced. The offer drops to £20.79 per share including the dividend.

LongRiver expressed surprise and disappointment at the rejection, arguing that its “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”.

In a statement, Severn Trent says it has delivered a total shareholder return of 72 percent since the beginning of the current regulatory period through to March 31. It pointed out that its share price has grown from £12.08 to £18.25 per share during the same time period, and that, since privatisation in 1990, its regulatory capital value has grown from £865 million to £7.36 billion.

“Severn Trent is well prepared for the next price review and for longer-term developments in the future regulatory landscape for the water industry,” the board of directors stated.

The investor consortium has until June 11 to come up with a revised offer.